Capco: Closing the Gaps – A Pragmatic Approach to ETRM Implementations
Posted: 5 September 2017 | Author: Mayank Moudgil | Source: Capco
We wrote recently about the difficulties many companies have had because of the impacts of the recent price collapse on organizations and the systems they use. These companies – including E&Ps, midstream services, marketers and traders – have had to make almost constant and often painful adjustments to their organizations, asset mixes and business strategies in reaction to steep price declines and continuing uncertainty surrounding their future direction. Again, these changes have often had profound impacts on the usability and utility of their ETRM systems, compelling companies to seek replacement solutions that better fit their current business processes, organizational structures, revised asset mixes, regulatory exposures and strategies.
However, the market experience over the last two decades (and more) has shown that the complexities inherent in these businesses makes finding a commercially supplied “off-the-shelf” solution that addresses 100 percent of any of these companies’ individual needs highly unlikely; leaving functional gaps that they must address during the implementation process.
Does it make more sense to judge value in terms of overall service? Expectations of the success of a service need to be defined by way of a service level agreement (SLA). The SLA can include execution related considerations, such as quality of execution, access to liquidity, support for the sell side broker commentary and market insights, access to IPOs and responsiveness of service. Or, the emphasis can be on research-focused measurements. These may include accessibility of industry experts, published reports with substantiated analysis (which can be shared with clients or used for internal portfolio management), insights which can be incorporated with multiple third parties and in-house views to help prepare a customized client investment viewpoint.
Even “best fit” systems usually fall short
It’s commonly accepted as a truism that most asset-centric energy companies can expect, at best, an 80 to 85 percent fit when an “out-of-the-box” ETRM system is overlaid against their needs. Further, that same experience shows that the Pareto principle, also known as the 80/20 rule, when applied to ETRM software, indicates that 80 percent of the effort and costs of deploying and implementing a new system is spent addressing that 20 percent gap in functionality, a gap that’s common even to the best-fitting commercially available solutions.
Once companies identify these gaps in capability between user needs and system functionality, often their first inclination is to build custom-coded capabilities to address the shortfalls. Unfortunately, that decision can ultimately saddle a company with a costly development project and lead to increased costs, because that custom code requires maintenance, upgrades and testing, particularly as the underlying ETRM system is updated and upgraded by the vendor.
Capco recommends taking a pragmatic approach in addressing functional gaps. In our experience, all too often new ETRM system implementations efforts drift towards complex custom code development efforts to address functional gaps when, in fact, other approaches could yield a better solution that is simpler and more affordable.
The Capco approach
The first step in addressing gaps should always be to undertake a review to determine whether the functionality is critical to the business. It’s common that the individuals who identified a critical need will have done so because the process or capability was a part of their routines for years or because the legacy system supported their now-missing capability. Often, the new system can provide similar capabilities, but not necessarily in the same manner the previous system did. The new system may require more steps or the use of additional data fields, and while inconvenient, adapting your processes to use existing capabilities – despite requiring some additional effort – can result in a much simpler and significantly less costly approach than developing and maintaining custom code.
We recommend that organizations review the specific process or processes associated with the identified gap with the goal of revising or eliminating as many steps as possible, in order to better match available ETRM system capabilities. Again, often these unique requirements are simply artifacts of “how things have always been done.” Gaps can also result from inefficient ad hoc processes or requirements developed on the fly with the intention to create a more efficient and permanent solution later. These situations often arise during periods of rapid business change, and these temporary processes can become more ingrained in the business than initially envisioned. Focus on addressing these critical process steps and requirements using the capabilities of the new ETRM system by adjusting your processes to match these system capabilities whenever and wherever possible. Even if this approach cannot fully close the gap, it can help reduce its size and enable your team to address missing functionality with less costly workarounds or off-system solutions.
As part of that same review process, companies must fully understand the impact of not having reliable functionality to address the gap. If a company determines that the lack of that functionality, or a failure of the solution to address it, would create unacceptable levels of risk – financial, operational, regulatory or other – it is likely in the company’s best interest to invest in developing and maintaining a custom capability or solution to supplement the ETRM system. However, if that is the case, we recommend that companies first consider an off-system approach.
Rather than building additional code that is highly integrated with or built within the core system, companies should consider developing a loosely integrated, services-oriented solution that addresses necessary functionality via custom code but does not depend on a tight and complex coupling to the core ETRM solution. A loose integration in the form of a services-oriented architecture can reduce the costs and effort to maintain that code, because ETRM system vendor updates and upgrades will impact it less.
Lastly and, again, if a company determines that developing new software capabilities is the only appropriate course of action to address the critical gap, organizations should consider approaching the ETRM system vendor to develop and maintain the code and capability as part of its core system. While it’s likely the vendor will require additional license or development fees for doing so, this solution may ultimately be the most economical. While the vendor may require more time to deliver that capability as part of its core solution, once delivered, the solution would fully support the capability, relieving company staff of the maintenance, integration and testing costs and time that would come with each ETRM upgrade.
In the time required for the vendor to deliver the new functionality, it’s important to keep in mind that any custom development effort a company might undertake as a bridge will also require significant time to complete and test. Given that, should the vendor agree to build the necessary functionality, an alternative short-lived workaround (such as a well-protected spreadsheet or a well-documented and closely supervised manual process) should be considered instead until the vendor delivers the required capabilities as part of the core system.
In a perfect world, companies would use an ETRM system that address all of their business needs.However, asset-centric companies operating in today’s market usually won’t find such a system; they will either need to adapt their business to fit the best available option, or they will have to develop workarounds or new capabilities to supplement that best available ETRM system.
Unfortunately, all too often, system integration and consulting firms are quick to default to the “we can build that for you” mode, developing and embedding custom code that will unnecessarily increase the costs and risks of both the system’s implementation and its ongoing support.
At Capco, we strive to provide the most effective and efficient approach to addressing system gaps, an approach that fully addresses the needs of your business and is based upon a thorough evaluation of all alternatives, including the risks and total cost of ownership of each. Our teams have the business and technical experience and expertise to identify and evaluate all alternative approaches within the context of your business and its priorities. Our mission is to provide you and your company a full understanding of the costs, benefits and risks of each, with a recommended approach that ensures the most successful use of your systems now and in the future.