Streamlining financial functions
- Posted on December 5, 2010
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UTILITIES OFTEN PREFER NOT TO BE ON THE bleeding edge of new technology, opting instead to be fast followers when it comes to game-changing, high-tech innovations that can change the face of the industry by introducing new efficiencies.
That's not the case when it comes to New York-based ConEdison.
The utility recently implemented an energy trading and risk management (ETRM) software system designed to improve business processes and front, middle and back-end office functions associated with the buying and selling of energy commodities.
"I'd say we're days ahead" of others in the industry, said Jonathan Hirst, a project manager in the energy risk management department at ConEdison, of his firm's decision to embrace the new technology. "Return on investment was not an explicit factor in this decision. If you are in this business, you need this."
Streamlining trade confirmation process
The software, which went live in 2009 after nearly two years of testing, has helped to greatly streamline complicated financial functions such as month-end closings, which typically took until the fourth business day of the next month to complete.
With ETRM software in place, ConEdison routinely meets its reporting obligation two days faster. The new system has also streamlined the trade confirmation process at ConEdison, which provides electricity to most of New York City.
"Our confirmation process is a very important part of what goes into the ERMI [electronic resource management initiative] system," Hirst said. "Trades are entered, confirmed at the management level, confirmed by contract administration, and then risk management locks the trade down. So there are several levels to the process. Prior to installing the software, this was all being done through diverse systems. So we weren't talking to each other departmentally. But we've been able to take our business process, layer it into the system, and have them work together."
Although the system went live in January 2009, Hirst and his team ran different nodes of the software for 12 to 18 months before ConEdison turned the software loose to become the "system of record," meaning that the data from the system was officially being relied upon to produce mounds of data for ConEdison's financial statements.
Going from push to pull
Hirst says that the biggest process change since deploying the system is that all of the information regarding energy purchases-physical or financial-is now housed in one system and is available in real-time 24/7.
"It has changed our business process from being a push to a pull system," said Hirst. "Before when we did end-of-month closing, we'd send all of our reports to our accountants. We no longer have to do that, since they can access the system and pull the information they need at any time.
"It's a more productive use of labor. There are certainly some things that take less time."
Hirst notes that ConEd is still responsible for "blessing" the information and making sure it's correct, such as that all trade entries are included. But instead of waiting for the information, the accounting team can access it instantaneously, not just at month's end.
"The information is always available to them for however they may want to analyze it," he said. "And the silos that might have existed before kind of go away with this, because all the information is accessible to every user. That's been the biggest change."
Preparation paved the way
What made the ConEdison deployment go so smoothly? The answer can be found in the prolonged preparation that the company undertook, including the eight different departments that the software touched, and as many as 45 team members. By the time ConEdison was ready to submit its request for proposals, team leaders knew exactly what they wanted out of an ETRM system.
"Our spec was probably much wider than most companies," Hirst said. "Most companies go in with the idea of doing some module and building off that in the future, but we did it the other way around. When we went to system vendors with an RFP, we could specify in great detail what we wanted to see. We had a complete picture of what we wanted and asked, `Can you build this?'"
ConEdison's spec contained 13 major business categories and objectives, with security being chief among them. Some categories had two or three items, while others had 20 or more. The ConEd team looked for a vendor that could handle all of the items.
Robust with room for new apps
"It was a fairly strict grading system," said Hirst, who notes that the vendors were narrowed to three finalists after an exhaustive evaluation period. "We were much more deliberate about it than anybody I've spoken with. We sat down every day for a couple months with every user who would be impacted and every department group. We plotted what our needs were, how we were doing things and how we'd like to do them in the future, so that when we were ready to put together a spec, all business groups would be represented."
Although ConEdison deployed a fairly robust system to begin with, there is still room for additional applications and future productivity enhancements. For example, because of current system constraints beyond the ETRM software, data does not flow directly from trade entry to the financial function. Right now, information coming out of the ETRM system goes to accounting, which then makes the appropriate entries.
"That's not what we had initially envisioned as where we wanted to go with this, but at some point we will be there," said Hirst. "That information should flow, but it will require a fair number of interfaces to be built into our existing systems, which are older and diverse. But we expect, as part of another major company effort to update other systems, that at some point we will have that interface built and it will take trades from inception to the financials."
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