As commodity firms continue to digitalise their businesses, more and more processes are becoming automated. When it comes to commodity trading and risk management (CTRM) software systems, increasing automation is a number one priority this year, according to Energy Risk’s annual software survey.
Almost 64% of respondents said they planned to make changes to their CTRM system landscape in 2022, whether it be small tweaks or major overhauls and swapping vendors. Some 70% of those making changes said their organisation planned to increase automation. Enhancing analytics and improving data collection were the second and third most popular choices (see figure 1.)
The survey, which was carried out between December 14, 2021 and February 14, 2022, polled 584 users of commodities software at energy firms, trading houses and consultancies about their experiences with commodities software, their IT challenges and agendas this year. The specialist poll has been running alongside the Energy Risk Software Rankings since 2005, providing 17 years of data charting the use of software by the risk and trading functions of commodity firms. Its findings highlight many underlying trends and show the spread of new technologies and the digitalisation of the sector.
When asked what their organisation is ultimately trying to achieve through making changes to the CTRM software landscape, 75% of respondents said it was to increase operational efficiencies, which ties in with automation being a priority. Interestingly, the desire to increase operational efficiency came in even higher than wanting to achieve increased risk management capabilities. This was the second most popular choice, voted for by 69% of respondents (see figure 2.)
In terms of technology budgets, 39% said their budget would be larger this year than last, with 48% saying it would be the same and just 13% expecting a smaller pot in 2022 than 2021.
The major factor driving firms to make changes – voted for by 51% of respondents – was given as growth of the company, perhaps reflecting the impact that the current commodities price boom is having on small to mid-sized companies. Increased market complexity was the second most popular reason, garnering almost 45% of responses (see figure 3.)
The top three projects most likely to be requested by the risk team this year were expected to be data collection, moving the CTRM system to the cloud and predictive analytics (see table A.) As markets become more complex, the struggle to obtain good data remains very much at the forefront, but these results reflect the fact that more and more firms are forging forward with data analytics, employing data scientists and using data for its predictive capabilities.
The broad trend of moving CTRM systems to the cloud – something that has shown up clearly in this survey in recent years – continued this year. Some 44% of respondents said their CTRM system is now fully in the cloud (up from 42% last year) while 21% said they have some functionality in the cloud and 35% said they don’t have any cloud-based applications. This compares with 42% last year (see table B.)
Like last year, the biggest IT challenge for energy risk managers and traders – voted for by 53% of respondents – was “understanding what new technologies are available and applicable”. Having to work tactically rather than strategically came in as the second biggest IT challenge, with 49% of the vote, while understanding what competitors were doing was third, with 29%. Just under 12% of respondents said their biggest challenge was getting time with the chief information officer (see figure 4.)
The survey asked respondents to say which areas within trading and risk, or required by trading and risk, they see as being most beset by problematic IT issues (see figure 5.) System integration came top of the list with 65% of respondents voting for it. This was followed closely by data cleaning and developing analytics, both voted for by 57% of respondents.
Looking at IT issues that negatively affect trading and risk management functions, the largest number of respondents (45%) listed their biggest hindrance as being vendors not fully understanding firms’ requirements. This was followed by poor customer service and support from vendors, which 42% of respondents listed. Some 37% of respondents indicated it was a hindrance having multiple relationships with software vendors, while 23% bemoaned contract or licensing issues.
Over half (53%) of respondents reported being “fairly satisfied” with their current CTRM system, with 28% being “very satisfied”. A further 13% said they were “fairly unsatisfied” with just 6% reporting being “very dissatisfied”.
Among complaints about their current CTRM software systems, the biggest, with 39% of respondents voting for it, was lack of flexibility to add or remove functionality (see figure 6.) Some 35% of respondents complained of restricted coverage or a lack of functionality, with a further 35% reporting poor or slow performance. Around 18% saw their system as being poor value for money.