Here are four tips to choosing the right ETRM or CTRM system to transform your business today and provide the agility to respond to the demands of the future.
Trading and risk management can be some of the most exciting and intellectually engaging aspects of a modern energy business, and the opportunity to transform a company’s process and technology through an ETRM or CTRM system implementation is tantalizing. There’s almost always a strong entrepreneurial drive from the commercial organization to rapidly deploy a new system and start capturing additional enterprise value. That sense of urgency can sometimes lead to rushed or even rash decisions about technology resulting in higher implementation costs, expensive ongoing support, or even the inability to realize the original commercial benefits case.
A confluence of changes in the ETRM/CTRM solution space combined with more macro technology trends is exposing weaknesses in certain formulaic IT and technology procurement processes that can lead to suboptimal outcomes. The following four recommendations are intended to directly enhance and augment such processes to improve the odds of finding the right match for the business.
- Understand The Business Model & Core Capabilities
It might seem obvious but getting a clear picture of the business, how it creates value for stakeholders now, in the future, and within the company’s associated governance structures is foundational for selecting the right trading and risk solution(s). The needs of a crude marketer that’s evolving to incorporate a hedging program and a handful of arbitrage strategies is very different from a sophisticated trading house seeking to expand into new commodities, new markets, exotic instruments, or digitally enabling their trading and risk solution framework. A solution tailored to today’s organization may be quickly outgrown without thoughtful view of needs five to seven years down the line.
Creating value in the context of a particular business model is built upon a set of core capabilities that must each be enabled by some combination of people, process, data, and technology. Identifying these capabilities by asking the question: “What do we have to be able to do as an organization to capitalize on the value streams generated by our business model?” From there, it’s possible to get specific about the ways in which your choice of ETRM/CTRM systems must provide for the process, data, and technology demands of the capabilities. Along the way, it’s likely that a case for organizational change, the introduction of new capabilities, opportunities to digitize processes, and so forth will emerge that wasn’t previously appreciated but can help substantiate a project’s benefits case and define scope.
These two components provide the base, but there are several others to address before getting too far down the path with an IT project.
- Define A Clear Technology Strategy & Architecture
For business and IT leaders, the occasion of a transformative system implementation like a new ERP, ETRM or CTRM, or other enterprise class solution presents a rare opportunity to take a step back, look at the technology landscape and, potentially, take steps in a fresh architectural direction. Is the IT department advancing in a cloud-first, digital-native direction in terms of application strategy? Is the imperative a postmodern ERP approach that seeks to leverage extensive API-based integration among purpose-built, leading tools? This type of project can provide the impetus and resources for digital progress.
Clearly call out priorities from an infrastructure, application, integration, and security perspective. In this era of digitization, strategic architectural and technology considerations should carry considerable weight in defining a set of software selection criteria and identifying a population of potential technology and service providers. Applying this lens to the process will pay dividends in the final form of a long-lived IT asset constructed in a manner that supports the kind of agility businesses increasingly demand.
- Educate Yourself About The State Of The ETRM/CTRM Solution Market
ETRM and CTRM systems are a bit of a niche application segment. However, gone are the days when there were only a handful of credible competitors vying for licensing dollars from a compact group of larger energy traders and asset operators. As more companies have extended their commercial and risk activities, new entrants have formed and brought compelling products to market. A quick Internet search will yield dozens, if not hundreds, of listings for ETRM, CTRM and commodity management (CM) solutions, which can seem overwhelming at the start of a selection process.
The software vendors themselves, along with system integrators (SI), were once about the only source of information about these products, and their perspective was largely informed by their offerings and experiences. Fortunately, there are now several excellent resources that survey, gather, and compile up-to-date and reliable information. Prior to starting a formal selection process, time spent building awareness about the market, the options available, emerging trends, and so on will make sure a potentially great fit isn’t missed by error of omission. This is particularly important today as so many of the newer, cloud-native entrants are likely to be excellent alternatives that square well with recommendation #2, above, setting the stage for a future enhanced by robotic process automation (RPA), artificial intelligence (AI) and machine learning (ML).
Below are a few suggested resources for additional information:
- CTRM Center – An online portal focused on topics related to CTRM, including news, opinions, expert insight, and other useful information.
- PnL Explained Professionals (PEP) – A professional association with resources on topics related to commodity trading, risk management, CTRM software, etc.
- CTRM Professionals LinkedIn Group – A resource group for practitioners that assist clients with the selection, implementation, and maintenance of CTRM systems.
- Commodity and energy trading events like those by Commodities People and Alpha Insight.
- Webinars and videos provided by ETRM and CTRM vendors.
- Enumerate & Prioritize Your Business Requirements With An Eye To The Future
More than a few software selections have devolved into little more than a cursory market survey followed by a decision to purchase a product that’s viewed to be the most used in a particular energy industry vertical. It’s important to realize that many peers likely made their choice and implemented five, 10, or even 15+ years ago when there were fewer viable solutions available and might arrive at a different answer if they were to do it again today. That kind of copycat process can also inadvertently exclude progressive vendors and products that innovate and challenge the status quo. Business and technology both advance relentlessly. Furthermore, probing into a vendor’s current customer list may uncover that some use the software only regionally, or just for certain commodities, or for a line of business that isn’t readily relatable to your own.
Instead, and building upon recommendation #1, take a hard look at what makes your business truly differentiated from peer organizations as these areas will help crystalize specifically where and why it may not make sense to overweight the industry standard. Combine this information with the company’s needs that are common to the sector, whether that be processing liftings from truck racks, lease crude, physical product exchanges, or others to determine minimum qualifications. Challenge participants in the selection process to keep this list to the absolute fewest and most targeted necessities to reduce the likelihood of screening out some potentially very good options. Often, minimum qualifications discount the potential upside of new and emerging solution providers so keep an eye out for things like minimum numbers of customers, thresholds for numbers of active users, and years in business as there are often other ways to manage the risks they’re typically targeting.
Identifying and prioritizing a comprehensive list of ETRM or CTRM requirements used to be a daunting task given the limited information that was available and the fact that the knowledge was concentrated among a few specialized SIs. At this point, most well-established energy and commodity consultancies can provide a reasonable seed list of requirements that can be used to supplement the critical items identified previously and serve as a starting point for weighting and scoring later in the process.
Below are some suggested areas of additional focus:
- Product Roadmap & Reinvestment – Even the best applications will fall behind without a clear plan for product development supported by sufficient resources for reinvestment. Request information from prospective vendors to understand their level of commitment.
- Integration Capabilities – Emphasize integration capabilities and the ability to access data for reporting and analytics. Understand vendor experience working with third-party RPA tools, AI/ML, etc.
- Cybersecurity & Supply Chain Risk – The energy industry is a top target for malicious actors seeking to compromise systems and disrupt critical infrastructure. Ensuring the integrity of the software supply chain is often required (e.g., by NERC) and an ETRM or CTRM solution must be secure.
Summary & Conclusions
While this article focused on selecting from a population of commercially available off-the-shelf (COTS) alternatives, the option to build custom may be viable for companies that already have a solution set that covers much of the energy value chain. It can prove to be a very expensive endeavor to rip out and replace without materially adding incremental value so there may be more fit-for-purpose ways to move in a digital direction. In the end, it’s important to think critically about the traditional ETRM/CTRM software selection and procurement processes and tailor them to deliver an outcome that’s best aligned with your business model, capabilities, technology strategy, and differentiated requirements. Digital is disruptive by nature and applying decades-old selection, procurement, and implementation methodologies to these kinds of projects is unlikely to yield meaningful innovation.
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