A Renewed Focus on DATA for the Risk Management Enterprise in 2007
By Peter Sofarelli, Sales Manager, RiskAdvisory
DISCLAIMER: This article first appeared in the September 29th, 2006 issue of The Desk, and is reprinted with the permission of Scudder Publishing Group, LLC www.scudderpublishing.com.
RiskAdvisory sees several key
trends affecting the energy industry’s risk management practices that
will continue to gain momentum in 2007. As the energy trading and risk
management (ETRM) space matures, we are seeing demands for a higher level
of analysis, effectively replacing the
limitations created by spreadsheets. There seems to be a lot more pressure
from stakeholders on companies to do a better job of forecasting. This
trend is driving mid-market companies to seek greater sophistication
in their ETRM systems. In the past, only the largest energy firms invested
in complex risk management systems, but with ETRM vendors now supporting
solutions that fit energy portfolios of any size, this is becoming standard
operating procedure in medium and even small firms.
At the same time, we think that those utilities, large and small, who
have returned to their roots as regulated monopolies, will shrink their
risk investment budgets due to a perceived notion that risk is reduced.
We believe this is a mistake on their part. Shareholders should be vigilant
and demand the best possible risk management systems.
As ETRM software becomes more sophisticated, easier to use and absolutely
necessary because of increasing volatility, the question becomes how to
ensure that what is being presented
is factual and something that should be acted upon. The software industry
is known, somewhat infamously, for presenting nothing more than an idea
as a product and then developing said product during implementation. We
hear many customers demanding proof that the software works as advertised
before it is implemented and we are enthusiastic about the results this
will achieve. In 2007 we expect this trend to become even more prevalent
as budgets get squeezed and new systems are required to deliver enhanced
functionality while at the same time becoming
even more user friendly. Buyers will become more confident that the implementation
of new software is no longer the “neverending highway” project that absorbs
budget and time.
This leads us to the most significant trend we see for 2007: a renewed
focus on data for the risk management enterprise, specifically the integration
of data management simultaneously with risk analysis. This may seem like
an obvious linkage, but like any well thought-out IT project, sometimes
the forest gets lost in the trees.
The soft white underbelly of any risk project is a comprehensive vision
for the most complete capture and use of data. Most ETRM software
vendors focus on capturing data, perhaps
analyzing data and generating reports. But no firm uses a single system
for all activities, be it physical/financial deal capture, scheduling,
settlement, logistics, etc. Data arrives from many source systems, internal
and external, and more needs to be done to integrate data in a way that
allows not only business-level analysis, but also corporate-wide analysis.
Even today, risk data projects have been separated from risk analysis
projects – it’s not uncommon to be working on a risk management project
only to find out the data integration will be taking place in another
department next year. RiskAdvisory believes that energy companies are
poised to move toward the next stage of managing risk within their organization,
and that they will achieve this by focusing strongly on data integration
as a precursor to any risk project.