5 Critical Success Factors in Selecting and Implementing CTRM Solutions by Commodity Point

A CommodityPoint Whitepaper

5 Critical Success Factors in Selecting and Implementing CTRM Solutions Sponsored by:

CommodityPoint a division of UtiliPoint International, Inc. 19901 Southwest Freeway, Suite 121 Sugar Land, Texas 77479 www.commodity-point.com November 2012

Introduction With the possible exception of ERP applications such Oracle or SAP, Energy Trading and Risk Management (ETRM) systems are most likely the largest single information technology investment that an energy market participant will make. Beyond the license costs (which will run between several hundred thousand dollars up to tens of millions of dollars), implementation costs, as consistently demonstrated by CommodityPoint research, will increase that spend from 100 - 300%. Given the scale of this investment, it is critical that the right solution is initially identified and properly implemented – ETRM project failures will lead to huge losses in time and dollars; and potentially put careers at risk. CommodityPoint research, and anecdotal evidence, suggests that ETRM system implementations are more prone to failure than other large scale system

ETRM Implementation Successful?

projects. In our ETRM Implementation Survey and Report1, fully 27% of the respondents indicated that their projects had failed either entirely, or materially

Not Sure 6%

failed to meet the goals as originally envisioned when the project started.

The reasons for such

failures are numerous, but common threads do exist. Based upon the experience of the market, and

No 27% Yes 67%

reinforced by CommodityPoint research, we've identified 5 critical success factors that should be considered by any company seeking a new ETRM solution: 1. ETRM selection/implementation projects must be driven by the business and supported by the IT organization, not the other way around. 2. Projects should follow a structured, diligent procurement/vendor selection process that addresses not only the functionality required by the users, but recognizes as part of that selection process a number of other qualities of the vendors and products under consideration which will help to ensure a successful installation, implementation and live use of the system. 3. Executive buy-in, commitment and active support of the process from initiation through go-live is critical.

CommodityPoint ETRM Implementation Survey, CommodityPoint 2007

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4. Vendors must commit to make available experienced, knowledgeable consultants, and engage in a truly collaborative project, working in partnership with the client and actively supporting their goals. 5. Implementations should employ an iterative implementation methodology, such as an Agile process, that provides flexibility and adaptability to changes that invariability arise during the process; and is designed to provide iterative "wins" that demonstrate success and maintain project momentum. In this whitepaper, we'll review these critical success factors and take a look at a highly successful ETRM project that was executed in alignment with them.

Critical Factor 1 - Business Driven Process A selection/implementation process that is driven by the business and supported by the IT organization will ensure that the business users own the project "result" and are committed to its ongoing success once the system is in "live" use. Unfortunately, history has shown that many companies may underappreciate the impacts brought by deploying an ETRM system across the entirely of their business. Given that the new ETRM solution will essentially become the "operating system" of that business, its successful deployment and use is clearly dependent upon the ready adoption of it by those who will be interacting with it on a daily basis. Many times, the failure to fully appreciate the importance of user buy-in to the process have lead companies

task

their

organizations

with

"finding

system".

Unfortunately,

selection/implementation effort driven primarily by the IT group (even though it may involve the business users as team members) will usually lead to an outcome that does not fully anticipate the impact the new system will have on the business users, and will ultimately result in those users resisting the process changes that invariably are required. Actively involving business users as full partners in the effort from initiation to completion, and fully addressing their concerns in the process, will ensure that the selected system will best reflect their needs and motivate them to make any necessary process adjustments during the implementation process. In doing so, they will develop an attitude of ownership which will more likely lead to a positive outcome when the system goes live.

Critical Factor 2 - Selection Process Use of a structured, diligent procurement selection process that addresses not only the functional requirements of the business, but also recognizes the importance of a number of other qualities of that

vendor and their product will help to ensure an efficient and successful outcome for the selection/implementation process. The selection process should initially "cast a wide net", looking at all potential vendors that could meet the high level requirements; however that group of potentials should be narrowed down to a select few vendors based upon any prior experience with any of the vendors, the experiences of business associates and market research. Once that list has been reduced to less than a half dozen or so, most companies will issue RFP's (Requests for Proposals) to gather more information in order to select the two or three vendors to be invited in for product demonstrations. CommodityPoint recommends that these demos be based upon scenarios provided by the business users (with their expected results sets) and reflect both the mainstream of their business and a few scenarios that they feel are unique to their business and which may prove challenging to the vendors. Additionally, it is important to always check references, not only those supplied by the vendors, but other clients that may not have been listed by the vendors. Doing so will enable you to better determine the vendors' commitment to their wider client base, not just those with which they have the best relationships. Throughout the selection process, and particularly during conversations with the supplied references and other clients, you should consider a number of qualities that go beyond the functionality of the product or the commercial success of the vendor. Some of these qualities include: •

An established track record of vendor commitment in meeting customer needs through-out the life of the relationship

•

A vendor that can demonstrate a full understanding of the customer's business and can anticipate the requirement of their users

•

A product that is configurable and adaptable to the needs of the business users

These qualities will help to establish that vendor's willingness, capability, and track record in providing solutions that best fit their customers' individual needs, not just those of the broader market which they operate.

Critical Factor 4 - Executive Support Without a clear mandate from the highest levels of the organization, it will be difficult to achieve a successful outcome as large scale system implementations will require committed resources and will

impose a number of business process changes throughout the company. Executive support and commitment from beginning to end will ensure the full engagement from customer resources and empower them to make the necessary changes that will result in successful project. The organization’s leadership must unambiguously back the project and actively encourage the participation of all stakeholders in the process. It falls upon them to ensure key project personnel are properly incentivized to not only participate, but to "own" both the project and its result. Executive management must lead from the front of the project, proactively eliminating internal barriers and quickly resolving conflicts.

Critical Factor 4 - Vendor Commitment Access to knowledgeable and experienced vendor staff, combined with that vendor's commitment to support a collaborative project is a prerequisite to ensuring a successful and timely implementation effort. While no vendor can guarantee that any of their resources will remain dedicated to the project for its duration (employees are free to leave any company, of course), companies considering buying any vendor supported ETRM software would be well advised, when checking references of that vendor, to ask about prior experiences of those references as they relate to consistent, dedicated vendor supplied implementation resources. It's not uncommon for vendors to assign their best people to initiate a project, only to reassign them to "kick-off" another client's project or to send them to one that has not being going particularly well under the guidance of less experienced resources. Affirming the vendor's commitment to consistency of quality staff, backed by a track-record of doing so, should be a critical factor in the selection of product. Beyond the assigned resources, the vendor should also commit to work alongside the client, not merely in a support mode, but as a true partner in working toward a common goal. The vendor's project manager should be involved from the initiation of the project, developing the appropriate project plans with the client's project manager and both should actively manage their resources in a focused manner to ensure that plan deliverables are delivered on time and within budget. Doing so will require both project managers to keep a constant attention to scope, utilizing structured change management processes to ensure that both sides of the team (the vendor and customer) understand the impacts of the changes and their individual responsibilities for execution of those changes.

Critical Factor 5 - Iterative Implementation While most ETRM vendors will have an established methodology they recommend for implementing their products, companies purchasing a new system should ensure that the project utilizes an iterative process that fully engages their team throughout, is designed to proactively manage change, and provides interim "wins" that can demonstrate progress and success, helping to maintain project momentum. For any team member, particularly those from the business side that must balance their usual work load with their responsibilities to the project, implementation efforts can be difficult. By establishing achievable interim project deliverables, these team members can better measure their progress toward final completion, helping them to maintain enthusiasm and ensuring their continued support. Additionally, these deliverables enable the customer to better gauge vendor performance and hold them accountable for delivery of key functionality or code, preventing any unwanted surprises later in the project. Though the iterative process is designed to build and maintain project momentum, it is vitally important that the team members, and again particularly those from the business side, maintain a constant and consistent vision of the project goals and "to be state". Clearly elaborating this vision at the start of the project, and reinforcing it at all steps along the way, will ensure that the new product is fully adopted and any required process changes (including the "letting go" of the residual processes associated with the use of the legacy system that is being replaced) are fully implemented prior to going live. Positioning the most knowledgeable and experienced business user or users as advocates or ambassadors for the new system will help build support amongst the users during the implementation and will create a shared vision of the future state.

A Case Study We recently had the opportunity to visit with the ETRM project leadership team at Essent, the largest energy company in the Netherlands, to discuss their selection/implementation experiences as they replaced an existing vendor supplied solution with one from Pioneer Solutions, a US-based vendor of CTRM solutions. Essent's IT project manager, Mr. Arjen Evers, explained that the company had for several years been using a system from one of the largest E/CTRM solution providers in the market. Unfortunately, as the

company's Sales Portfolio Management (SPM) business unit evolved, that organization began to run into issues that are not uncommon in this market – high total cost of ownership (TCO) as the legacy system's use grew in scope across the larger company, and inadequate functionality to handle the evolving and specific needs of discreet organizations within that larger company; in Essent's SPM group's case, these specific needs were particularly around capture and management of non-standard deal structures. Given the high TCO and difficulty of addressing their evolving requirements in the incumbent vendor system, Essent's management directed the SPM team to review alternatives that would better fit the business unit's needs. Once the decision was made to seek a new vendor, Essent assembled a cross functional project team comprised of both business users and IT staff, and developed an aggressive project timeline; including two months for identification of the preferred vendor, three months for project initiation (including scoping, contract negotiations, and detailed project planning), followed by a three phase implementation effort. The first of the three phases of the project - utilizing the system for managing their wholesale energy business – was scheduled to span three and a half months, beginning in January of 2011. Phase two, initiating in July 2011 and scheduled for completion five months later, would address the company's retail/end-user book of business, and a final phase would focus on the implementation of incremental functionality that was required to meet the company's unique business processes and procedures. The team began, in November of 2011, a focused selection process in which they researched all available choices and developed a long list of potential vendors. After additional research, they were able to reduce that long list of more than a dozen potential vendors to a short list of two for inclusion in a formal RFP (request for proposal) process. After further qualification via the RFP, the two vendors were each invited for single day demos of their ability to capture and model six of the company's "worst case" scenario transactions, those that their existing system was unable to adequately handle. Knowing that no vendor supported system could provide 100% coverage all of the unique needs of their business, they developed demo scenarios that reflected those unique needs, and during the demo process undertook a gap analysis with each vendor, identifying necessary incremental capabilities with the mandate that any new code development required to address them must be incorporated into the core product, not developed as custom code. In doing this, Essent could ensure that future product

upgrades would support their requirements and not require a protracted and expense recoding effort of customized software. At the completion of the demonstration process, the team quickly arrived at the decision to engage Pioneer Solutions as their vendor of choice. According to Lucie Hemminga-van der Logt, the team's business lead, the company was selected primarily for the following reasons: •

Pioneer Solutions' TRMTracker ETRM system was best able to model the company's most complex scenarios.

•

TRMTracker's flexible architecture enabled Pioneer to commit to quickly build-out the necessary capabilities to bridge the few identified product gaps, including P&L attribution, additional Value at Risk methods and enhancement to the product's settlements process.

•

Pioneer's product team had demonstrated a superior understanding of Essent's business problems and requirements, ensuring that the company could quickly translate their business needs into the system configuration and develop the additional functionality without a protracted development process.

According to Ms. Hemminga-van der Logt, "Pioneer was able to take our requirements and translate those into an impressive demo. In fact, after they processed the scenario transactions, the results from TRMTracker indentified a number of errors in the anticipated scenario results that were prepared beforehand." As part of the contracting process, Pioneer committed to meeting the company's aggressive project schedule which mandated the phased delivery of functionality, including the first phase deliverable of having Essent's wholesale business live on the system by mid-July 2011. In order to meet this schedule, Essent's executive leaders ensured their company could provide the balanced and properly dedicated staff from the affected business groups and the IT organization, a team of 15 individuals with shared project leadership roles for both IT and the business users. For their part, Pioneer Solutions provided three full-time resources, with additional involvement of as many as 10 different Pioneer resources as required by the project plan. Utilizing an agile implementation process, in which the project was broken down into sub-phases (also known as sprints) with discreet deliverables, the team was able to readily track progress and maintain project momentum. These sprints, including an initial two week scoping phase in which the deliverables

of the subsequent sprints were fully delineated (and elaborated in the final contract between Essent and Pioneer), enabled the joint teams to focus on achieving project milestones and ensuring progress toward the go live dates. The first phases of the project, the wholesale books was completed on time and went live after a brief, but successful, testing period. Immediately upon completion of the first phase in mid-July 2011, the team began phase two, implementing the end user/retail business. This too was completed on time and went live in December of 2011. Additionally, within these two phases, the joint implementation team was able to complete, as additional interim deliverables, more than a half dozen interfaces between TRMTracker and several external and internal systems, including SAP, an end-user deal feed, forecasting system, price feeds and a connection to Trayport. The third phase of the implementation, the development of additional functionality, was initially scheduled to commence immediately following the completion of phase two. However, given changing business priorities, the decision was made to delay that work until after the first quarter of 2012. Once commenced, most of that work was completed as per the revised timeline, with some high-end functionality delivered through the regular change process.

Results As noted by the IT and Business leaders, the implementation was highly successful. In fact, Ms. Hemminga-van der Logt noted that this implementation effort was the "best project I've been involved with." She notes that the team, fully supported by the company's executive staff was "was very driven, very focused on success" and their selected vendor, Pioneer Solutions, was "eager to improve the product", ensuring any issues that arose during the process were addressed quickly. Mr. Evers notes that, as with any project, the primary success factor is to ensure that the new product meets the user's requirements and expectations, ensuring the product's acceptance and embracement. In meeting the user's need, he particularly cites TRMTracker's CUBE reporting capabilities, "The reporting functionality along with the deal booking capabilities gave complete transparency into the portfolio, immediately improving the portfolio management and risk analyses processes," an area of significant improvement over the legacy system. As for lessons learned in the process, Mr. Evers notes that occasionally the team found they were attempting "to do too many things at one time" and did need to work to maintain constant focus on the

established priorities. Refocusing on the established project deliverables, they were able to limit scope creep and deliver the key capabilities to the business on time and within budget. Perhaps the best measure of their success in this project was the fact that the functionality they implemented in the seven months of effort (the first two phases) required approximately two and half years of effort to achieve with their old system.

About Pioneer Solutions LLC Pioneer Solutions is a global software provider of next generation Energy Trading and Risk Management (ETRM), Environmental Management Information Systems (EMIS), and Enterprise Compliance Solutions. Serving some of the largest utilities and energy companies across the globe, the company's pioneering, flexible, all web-based architecture can easily model unique and challenging business requirements and automate business processes. Pioneer’s comprehensive suite of products are designed specifically for utilities and energy companies offering a single, seamlessly integrated, straight-through processing enterprise platform for all commodity types, risk exposures and compliance needs. Pioneer's proven, modular technology allows for delivery of specific modules or an entire comprehensive enterprise ETRM solution. This advanced, easily configurable, template and workflow driven architecture requires no coding expertise to configure; enabling Pioneer and to rapidly deploy a comprehensive, flexible ETRM solution. The system is designed for the user to be able to control and configure the platform, offering clients a low total cost of ownership solution for all ETRM, Emissions and compliance management needs.

About CommodityPoint CommodityPoint is the industry leader in providing Commodity Trading & Risk Management (CTRM) research, analysis and advisory services. Our services bring insight into business issues, trends, processes and technology, to utilities, energy companies, banks, brokers, funds, investors and vendors that enhance their competitive position and support critical business decisions around the wholesale commodity trading markets. Our team provides expert analysis of market trends and, in particular, the technologies and applications supporting those that participate in regional or global commodity markets. With offices in Europe and the US, and backed by an experienced research team, our organization provides an unparalleled view of the marketplace. CommodityPoint is a division of leading energy and utilities analyst and consulting firm, UtiliPoint International, Inc.

Other Resources The CTRM Blog – http://www.ctrmblog.com CommodityPoint – http://www.Commodity-Point.com TRM Products and Services Online Directory – http://www.trmdirectory.com

Other CommodityPoint Reports CommodityPoint research reports are available at http://www.Commodity-Point.com For Additional Information regarding this report or any CommodityPoint product or service, please contact Patrick Reames at preames@utilipoint.com or Mark Tredway at mtredway@utilipoint.com.

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