POSTED BY Jason Parks | POSTED IN Blog, CTRM, Featured

The 4 Principles You Must Get Right for Effective Risk Management

risk management

Risk management has always mattered for long-term success in the energy industry. Recent market trends of price volatility and regulatory uncertainty, along with a renewed interest in moving forward with high-profile energy projects, continue to reinforce the importance of sound risk-management principles.

Regardless of external conditions, there are four principles you must get right to effectively manage your company’s risk:

  • Position. What assets are included in your company’s portfolio? How much product do you have?  What does your supply chain encompass – production, transport, storage, end-users, generation?  How trustworthy is your data integrity – are trades correct and confirmed in a timely fashion?
  • Price. How much is your product worth? Do you understand the market price of your assets in a transparent, objective wayindependent from the assessment of traders?
  • Uncertainty. What happens when your company’s position changes or prices shift dramatically? How prepared are you and what is your strategy?
  • Controls. Does your company have rules in place to enforce independence and transparency, to segregate duties, and to track business activity relative to company limits (such as trading volume, credit lines, and P&L limits)?

 

If you can’t check each of these boxes, then your company could be unknowingly vulnerable to market fluctuations, rogue trading or just not maximizing returns on your assets.

It can be cumbersome to try to manage risk manually. Chances are, you’re using a commodity trading and risk management (CTRM) software such as Allegro. But are you getting the most out of your investment?

Allegro and capSpire can help you understand and minimize your company’s exposure to risk so you can weather any market scenario and maximize profits over the long haul. Allegro has functionality that corresponds with each of the four principles of effective risk management:

  • Position. Allegro’s core function is to secure this information via trade capture, inventory management, and asset modeling. The software can manage simple transactions as well as complex scenarios, such as transportation and storage, or power generation. Automation and reconciliation tools improve the quality and timeliness of all data.  This can be done using out-of-the-box functionality and Allegro’s strong extension capabilities, providing options to customize the software to your business.
  • Price. Allegro provides a “warehouse of prices” and interfaces with multiple industry sources to capture accurate price data. If you need to determine the worth of a product for which no published price is available, Allegro can customize and model exotic prices.
  • Uncertainty.  Allegro can perform Value at Risk (VaR) calculations and stress analysis out-of-the-box to simulate even the most extreme market scenarios, so that you can anticipate your company’s response and plan accordingly.  And with a highly customizable valuation engine, even the most exotic risk metrics can be captured.
  • Controls. Allegro manages individual access to different parts of the trade life-cycle, improves data integrity, tracks company limits, and can issue warnings when any of these controls have been breached. This helps risk managers monitor high transaction volume and pinpoint areas of concern.

Allegro is flexible and enables a large amount of personalization beyond its core functions. With more than 70 years of collective Allegro experience among our consultants, capSpire is in a unique position to help your company take your Allegro experience to the next level.  No other consultancy offers the same in-depth expertise or array of services. From a proven, efficient implementation approach to training, support, and custom software extensions, capSpire is here to optimize and simplify your Allegro experience.


Learn more at our free webinar, Explore the Latest Risk-Management Trends in the Energy Industry. The webinar will take place March 7th at 1 p.m. CST and will be co-hosted by Allegro and capSpire. Register now to save your spot.