Case_Study_2
  • Automating Back Office Derivative Accounting Processes
  • Portfolio Asset Valuation using ProNG+

Automating Back Office Derivative Accounting Processes

Northeast US based Energy utility achieves Back Office Derivative process consolidation and
end-to-end automation around Journal Entry and SEC Disclosure reporting using RPM

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The fundamental idea behind RPM was to build an integrated platform that allows customers to create and automate reporting and monitoring processes for daily workflows that would also accommodate future changes in rules, data structures, and reporting. RPM has been built in collaboration with major energy companies, allowing us to create industry specific features and functionality for trading compliance and SEC Disclosure reporting. The Apps feature in RPM allows us to develop and deploy bespoke process automation rapidly by combining a customer specific user-interface and existing core modules.

 

Key Challenges

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The client was planning to automate the existing Back Office processes specifically around the Journal Entry and SEC Disclosure reporting. During the initial requirements meetings HOC learnt that the implementation would include the following challenges. The client expected the team to address all these challenges as part of the RPM implementation project.

  • Consolidate and streamline multiple data sources from the ETRM system
  • Define business rules to encompass the requirements of different internal accounting teams with their varied legacy processes
  • Interface with multiple system, each having a different interface layer – Database, Excel and Access
  • Generate Journal Entry reports which conform to the format expected by the accounting system
  • Automate all the SEC Disclosure reporting processes which were largely manual in the current form
  • Have a fully audited, SOX-compliant platform with an intuitive and user friendly user interface. This also includes the ability to lock down prior data after the accounting period is closed
  • Ability to add, manage and report manual adjustment records in a flexible yet robust way
  • Ability to have an application server in a server farm with an integrated load balancing architecture

Solution

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RPM’s Data Interface Manager, which allows for easy interfacing with external systems via Database, Excel, Access, and web service based interface layers, can be easily used as an out-of-box solution to link and consolidate data from multiple systems.

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The in-built User Defined Tables module in RPM provides the ability to saveand maintain user-defined data mapping rules. The powerful module also allows the user to maintain multiple copies of the rules as they changeevery accounting month, and securely lock down the historical rules and mapping.

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In addition to this, the ability to define client specific biz-layers allows for endless possibilities for defining business rules and procedures.

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The Template-based Spatial reporting framework of RPM is a power tool which can be used to generate Journal Entry and SEC Disclosure reports in custom formats expected by the Accounting Ledger Systems and at the same time provide user-defined summary and detail views.

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RPM has the most flexible and unique way of handling Manual Adjustments which tie directly to the primary source data. The feature allows for defining manual adjustments which look and behave just like the source data with all trade attributes available for the users.

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RPM is a fully audited system. Managers can run Audit reports on all the modules in the system to track down changes in data and configuration. RPM also supports Active Directory based single sign-on. The system has in-build rigorous password policies which make the system fully SOX Compliant.
RPM provides an ingenious way to lock down data sets in the system and password protect them with dynamic passwords. This feature truly adds to the robustness of the system by avoiding the historical data from being accidentally overwritten, while at the same time providing considerable peace of mind to the stakeholders.

Technology

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RPM is built upon the latest technology. Following are a few salient features in RPM which makes it a truly robust enterprise system:

  • Ability to run multiple memory intensive processes by utilizing the maximum physical memory. This is achieved by supporting 64-bit processor architecture
  • Support multiple application servers (server farm) controlled by a load balancer by using the in-builtSSIS Request forwarding feature
  • Clients need not worry about the version compatibility with Microsoft Excel. The use of OpenXML make RPM agnostic to Excel versions
  • Web based user interface that is built upon the Microsoft Silverlight framework which makes for a great user experience
  • Support for Active Directory based authentication which is fully configurable by the IT admins.


Business Value Addition

  • End-to-end process automation is achieved by eliminating manual data and reporting processes
  • Removal of data redundancy is the direct result of streamlining the process flow from start to finish
  • Automatic data reconciliation at every step of the process adds to the overall transparency of the data and reports
  • Users control the business rules with minimum IT support – defining rules and mapping made easy by the full featured mapping and user defined table layer
  • Lockdown of source data and reports, in addition to object level auditing, provided complete control to the stakeholders
  • Template-based reporting makes it easier than ever to format and enrich reporting without complicated configuration or coding

Portfolio Asset Valuation using ProNG+

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US based Energy Management Company incorporates FEA’s valuation and analytics models
for a complete portfolio valuation and reporting using ProNG+.

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ProNG+ was jointly developed by FEA and HOC to provide decision support and valuation for the most complex gas storage, swing and transportation contracts. ProNG+ also integrates FEA’s Basic, Advanced, Swing and Power Generation libraries for the valuation and reporting of various forms of Natural gas, Coal, Power, Emissions and Oil derivatives. FEA’s @Energy suite integrated in ProNG+ is the most commonly used and accepted set of energy derivatives analytics and valuation techniques in the energy industry worldwide.

 

Key Challenges

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The primary requirement for the Director of Portfolio Valuation was to implement the FEA analytics for trade valuation. The existing process had various issues and the client was looking for an end-to-end solution to replace it. But to achieve a seamless solution the following key challenges needed to be addressed:

  • The valuation of the trades involved the use of multiple functions from FEA’s suite of @Energy functions ranging across the Basic, Advanced and Swing categories
  • The interface with the existing Energy Trading and Risk Management system needed to be re-designed to work with the valuation functions
  • The valuation needed to complete overnight and create the reports in a pre-defined location
  • It was necessary to have proper event and error logs generated after each valuation run
  • Allow for ad hoc valuation runs during the day
  • Ability to store market data and trades in the system and allow the users to modify the data during the day and re-run the valuations
  • Have the ability to simulate market data curves in real time
  • Ability to generate custom reports in a format compatible with downstream processes

Solution

ProNG+, right out-of-the-box, supports various FEA valuation functions across the Basics, Advanced, Swing, Storage and Power Gen libraries. All inputs and model calibrations involved in the valuation functions can be managed and automated inside of ProNG+ with user-friendly error reporting. This proved to be extremely valuable for the client as it made sure that the users didn’t have to worry about incorrectly assigning inputs and model parameters.

The in-built Curves module in ProNG+ is a feature rich yet user friendly hub for defining various types of named curves in the system – Price, Implied Volatilities, Cash Volatilities, Interest Rates and Correlations. Users can create and edit curves right inside of ProNG+, which can then be used as inputs to various FEA functions. The client found this module to fit perfectly with their requirements – it allowed them to maintain all the market data curves inside the application making it possible to edit them as and when necessary.

The Batch Process module in ProNG+ proves to be the most used feature by the client. The rich feature set that comes with the Batch Process engine of ProNG+, which includes automated interfacing with Trades/Contracts data from the client’s trade capture system, as well as automated import of all market data which allows for a seamless workflow for the users, works great with custom job triggers and easily ties into the existing asset management framework as ProNG+ fit perfectly with the upstream and downstream process automation.

ProNG+ inherently allows for real-time simulation of market data curves. The users like the fact that this feature allows them to perform real-time stress analysis on market data, like a 5% shift in Natural Gas Prices on Henry Hub for the next 2 years and 10% shift for the following years, or introduce a 2 cent Bid-Ask spread for Fuel Prices at a particular Power Plant and analyze the subsequent impact on the entire portfolio.

Technology

ProNG+ is built upon the latest technology. Following are a few salient features in ProNG+ which makes it a truly robust enterprise system:

  • Ability to run multiple memory intensive processes by utilizing the maximum physical memory. This is achieved by supporting 64-bit processor architecture
  • Support multiple application servers (server farm) controlled by a load balancer by using the Valuation Server architecture developed by HOC. This feature enabled the client to have their entire portfolio valuation done within 2 hours (which was a huge benefit over their old workflow which seldom allowed for overnight runs to finish on time even when they were run on multiple servers)
  • Users no longer need to exhaust the processor and memory on their workstations by running extreme valuations and simulations locally. The unique client-server architecture of ProNG+ allows users to use any of the ‘Valuation Servers’ available on their network to run the valuations while keeping their workstations still available for other work


Business Value Addition

The ProNG+ platform proved to be a huge success for the client.

  • It brought vast efficiencies in the overall asset valuation process, with the FEA model providing unparalleled valuation to a varied set of trade and asset types and ProNG+ making it easier than ever to automate the entire process
  • Maximum transparency in the valuation process, which includes automatic reconciliation of results with FEA Excel model
  • Reduced the overall portfolio valuation times by 75%. In addition to this the user-friendly logs provided clear and precise troubleshooting
  • This also allowed for one-off, ad-hoc valuation runs to be done during the day.