Top Risks in Enterprise Risk Mgmt. ERM, ETRM Software Implementations
What are the Top Risks associated with Enterprise Risk Management -ERM & Commodity Energy Trading and Risk Management CTRM-ETRM software implementations and how can they be avoided:
1. Will the software easily meet your unique requirements. In the ERM and/or CTRM-ETRM world this is probably the toughest challenge that vendors and their clients face, why is that? Because every client does C-Etrm and ERM differently presenting a huge challenge for the vendors; in most cases the vendor will require coding changes to meet unique requirements, this is where the risk of delivery starts. HINT: Look for formula-driven C-ETRM software that is "configurable" with "no coding expertise needed" for change mgmt. and implementation this drastically lowers the delivery risk and time to deliver. Products that require coding changes are risky and expensive and this is where implementations start to go rogue.
2. Does the vendor have a good reputation at delivering their product? This is the toughest one to qualify because vendors are not going to tell you about their failures nor are they going to give you references that are not going to support their claims. One suggestion is to ask for thier entire clients list and ask to speak to a few outside of the ones they have provided...also you can talk to professionals/consultants that are on the inside and ask them what they are hearing about the vendor. Keep in mind that all hard-coded C-Etrm vendors have had their fair share of delivery problems that is why #1 & #2 of this list exists; again look for newer "configurable" rapid deployment technologies that take out the risk of delivery.
3. Will the software be compatible with our existing IT infrastructure? ERM software and C-ETRM software must be able to easily drop into complex internal and external technology architectures/environments posing huge problems & risks if the software is not architected for ease-of-integration. Note: Just because a vendor says they are open architected for ease-of-integration does not mean that can easily integrate. If they say that they will have to code an adapter and/or they are charging the cost of a new car, for example, to build the adapter than you can assume that coding is necessary to integrate the technology. HINT: Look for software architectures that have embedded middle-ware technology that supports ease-of-integration.
4. What is the average timeframe to delivery? Again, many vendors will tell you that they can rapidly delivery however it is rarely the case. Rapid delivery is only supported by ERM, C-ETRM technologies that do not require expensive and time consuming coding changes to deliver gaps. Again, look for newer "Configurable" technologies that support rapid delivery, this will drastically lower your implementation risk and get you up and running in less than half the time it takes for hard-coded software to meet your requirements. HINT: If a vendor is unwilling to fix price the implementation costs than you are in for a long ride...be careful 40-60% of all ERM and C-ETRM implementations fail to meet their delivery expectations/goals/milestones and more than 80% will run over time and budget. Seek a vendor that has a track record of delivering on time and on budget and that is willing to fix price the implementation.
5. Vendor stability- This is often a question asked and in some instances a deal killer for smaller vendors that may have a superior product yet they may or may not have a balance sheet that you are comfortable with. Remember that all ERM, C-ETRM vendors at one time or another where start-ups with this challenge. In my opinion, if they offer a better mouse trap than the risk associated with them failing, with you as a paying client, is far less risk than that of having a failed implementation. HINT: You can ask the vendor to place the source code in escrow to assure that you will own the code should something happen to that vendor; this will drastically reduce this risk.
6. The ERM, C-ETRM softwares ability to easily manage change- This is an important consideration and one that is often overlooked in the evaluation process because it is after the fact. It is also an important value proposition that a product or vendor brings to an organization...does the product offer a lower total cost of ownership overtime by being able to easily meet change? Many vendor products require coding changes to manage ever changing requirements, this is an area where huge dollars are squandered and expensive staffing is required, for example, .Net programmers etc are often needed just to keep a product current. HINT: Again, look for newer technologies that empower the business user, not IT or consultants (coders) with the ability to manage change.
7. With all of the above concerns one may consider building their own ERM and/or C-ETRM system. While your IT department may think they have the talent to embark on this journey there are some important things to consider. In all of my professional trading and risk management ETRM career that spans 30 years, I have yet to see a successful build. Why is that you may ask, well you dont have to look far, just at the above challenges that even the most established vendors in the space struggle with ...and they specialize in this area exclusively.
Key to the demise of builds is the architecture of the product and this is where internal IT usually blows it...why becuase they do not have the internal expertise to architect a state-of-the-art platform with all of the bells and whistles that you will want, for instance programmable work-flow for automation and much more. In order to build you a system that is real-time and automated is a daunting task and highly risky...in fact, I have never, in my extensive career in ETRM seen it done successfully...please give me feedback if you have?
However, there is a hybrid approach that one may want to consider that offers the best of both worlds. As mentioned architecture is the key to a successful build and starting with a good one to begin with will jump start your organization in the right direction; why reinvent the wheel when a good rim exists. Consider highly configurable new architectures in the ERM, C-ETRM space that will get you near 60% right out-of-the-box...What are you getting, basically a solid proven all web-based architecture that is flexible and malleable and easily configurable with "no coding needed" to your specifications.
Starting with a solid architecture drastically lowers the risk associated with an internal developement/build effort and it drastically (in years) speeds the time to delivery. HINT: Look for formula-driven technologies that empowers the business user with the ability to configure the software. Sound to good to be true, well it isn't and you don't have to look far to find it!
More on Pioneer Solutions Financial and Regulatory Risk Mgmt. (FARRMS) all web-based, formula-driven, work-flow driven architecture