Tag Archives: derivative hedge accounting software

Is your Derivative Hedge Accounting-Fas 133 process fully automated?

Post by admin on October 3, 2011

Is your Derivative Hedge Accounting-Fas 133-157 process fully automated? Making a Case for Automating your Derivative Hedge Accounting Processes -Fas 133, 157 and IAS39 automation

FASTrackerDerivative hedge accounting standards such as FAS133, FAS157 and IAS39 along with disclosure requirements are here to stay although discussions on convergence and simplification continue to occur. Anybody who has implemented a derivative accounting process can vouch that compliance can be a daunting, complex and laborious task.

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Limit- Based Automation for Derivative Hedge Accounting Processes

Post by admin on August 24, 2011

Pioneer BannerGlobal derivative hedge accounting standards, whether it is FAS133, IAS39 or AASB 139, mandate concrete documentation for managing hedges along with the proper accounting treatments for hedge designation and de-designations. In general, a front-office may be responsible with tagging the derivative for derivative hedge accounting compliance scope, for example as “Normal Purchase- Normal Sales” (NPNS)/”Own Use”, Hedging Instrument or MTM. Front-office will have to rely on position limits that are fed from risk management or other applicable groups within the organization to maintain the proper hedging scope. In most cases this approach requires further maintenance of the designations in the form of scrutiny and/or corrective action by the group that is ultimately responsible for the derivative hedge accounting process. Problems can occur when the front-office may or may not necessarily know a designation has changed and may not have the most up to date information on the trade hedges in order to assign a proper hedge accounting designation.

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Re-post Top Ten Reasons Etrm System Implementations Fail

Post by admin on August 23, 2011

Pioneer BannerTop five (5) of ten (10) reasons that energy (commodity) trading and risk management -ETRM –CTRM and Emissions Management Information System -EMIS solution implementation projects fail and how to avoid the pitfalls.

1.       Hard coded software rarely meets requirements; 80% is the avgerage fit to requirements requiring 20% (minimum) customization. This should not be a surprise to those that have been around software etrm implementations. Rarely does software meet 100% of requirements. One of the big reasons for this is that everyone in the energy trading and risk management space does business differently and likes to look at it differently. The key is to manage the 20%. To avoid rouge projects insist on a fixed price for the implementation, if that cannot be accomplished an iterative approach, where payment is made at the end of delivered iterations, should help ease risks. Also look for new technologies that are easily configurable (no coding needed) versus customizable (requiring coding expertise).

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Re-post FAS 133-157 Derivative Hedge Accounting Management Challenges

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FASB-Financial Accounting Standards Board FASB 133, FASB 157 Derivative Hedge Accounting Compliance Management Challenges  

Pioneer BannerThe Challenges of Managing FAS 133 & FAS 157 Compliance

FASB-Financial Accounting Standards Board FASB 133, FASB 157 -FAS for short, accounting compliance can be a dauting task, couple it with the complexity of managing hedges in compliance as they change and the process of derivative hedge accounting can quickly become an extremely complex business process to manage. Many companies in the commodity and energy trading and risk management C-ETRM hedging business attempt to manage the process on spreadsheets; however this can quickly become unmanageable and an audit nightmare as the amount of transactions and their intricate interrelationships can overburden those ultimately in charge of FAS compliance. This is more complicated by the fact that the designation and de-designation of hedges often change throughout a trade’s life-cycle making compliance of FAS 133 and 157 a challenge to maintain and an audit review’s target. So what can be done to improve this important compliance function and are there derivative hedge accounting  software products out their that are designed to manage and automate this important, challenging business task?

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Advantages of Agile, Rapid Iterative Delivery of CTRM/ETRM Solutions

Post by admin on August 10, 2011

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In today’s ever changing C/ETRM business environment, companies seeking C/ETRM software solutions must be careful to select solutions that can easily meet their requirements. Our experience with companies seeking C/ETRM software is that most clients require heavy customization to meet their unique business requirements. Most companies realize that buying off-the-shelf C/ETRM software systems at best will meet 60-80% of their needs. It is the other 20-40% of customization that clients must be aware of the costs and risks associated with delivery. In addition, companies need to carefully consider the cost of change management that can drastically increase the total cost of ownership of a C/ETRM solution over time.

There are a number of disadvantages to traditional methods of C/ETRM system software deployment, and failure to deliver is a common risk with even the most seasoned vendors. Traditional methods often lead to very long, expensive, highly disruptive implementations that fail to meet targeted business objectives. Why, because traditional, hard coded, C/ETRM technologies are often rigid in nature forcing companies to comply with the way the product manages the commodity instead of modeling the commodity the way they want to manage the asset. This often results in discontent from the users that are forced into a box. Also, the very nature of hard coded software requires lengthier and more costly delivery cycles because of the architectures inability to easily meet unique business objectives. Typically, a company’s return on investment is not realized until long after the project kicks off, if at all.

Longer implementations cause increased business disruption, and allow the project to be vulnerable to substantial expansions of scope and cost. As the project spans over a long time period, a company’s business needs often change and users will naturally have requests for additional functionality. These change requests must be added to the project scope, causing further increases in the project timeline, and higher costs of implementation.

Once implemented, change management often continues as companies business models evolve. C/ETRM solutions must be able to easily adapt to the ever changing business landscape. For example, the challenge of complying with Dodd-Frank requirements has companies, consultants and vendors positioning to meet the reporting requirements.  Change management is often overlooked in the C/ETRM evaluation process. This can lead to cost overruns for years as expensive ongoing consulting is needed just to meet basic demands.

In contrast, Pioneer Solutions’ agile rapid iterative delivery enables organizations to quickly realize their targeted business objectives at a reduced project cost and with minimal risk. The mere nature of our Financial and Regulatory Risk Management –FARRMS architecture that requires “no coding” to meet unique business requirements is ideal for a true agile delivery methodology and for maintaining ongoing change. In addition, FARRMS’ template and formula-driven architecture is ideal for companies with unique business requirements because it is easily configurable with no coding needed allowing Pioneer professional services to model our clients business the way they want to view, manage and report the portfolio.

Rapid iterations that quickly meet objectives are the goal of our project team where each iteration is limited in scope and is focused on a specific customer objective. Our targeted approach enables continuous identification and management of project risks, and increased flexibility to manage change. As an organizations complex business processes evolve, adaptations are made quickly by leveraging the easily configurable (no coding changes are necessary to conform) FARRMS architecture that empowers the business user, not IT or consultants with the ability to manage change.

Pioneer’s unique delivery culture fully engages the customer throughout the process, with every effort centered on a specific business objective. The result is reduced project cost, minimized risk, and timely delivery of quality software that is directly aligned with customer requirements. This successful approach has been noted by the C/ETRM community with Pioneer Solutions being recognized for its superior “Customer Service” two years running in an Energy Risk Independent C/ETRM vendor survey.

“Pioneer Solutions’ rapid iterative delivery process allowed us to quickly replace our existing system for sourcing transactions within time and budget” said the Project Manager of a large Utility

We encourage you to visit us at www.PioneerSolutionsGlobal.com to find more on how we are changing the way ETRM-CTRM systems are implemented and managed.

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Energy Trading and Risk Management-ETRM-CTRM- Hedging Strategies 2

Post by admin on July 5, 2011

Pioneer BannerSo why would a company enter into a hedge that becomes a cash burden? Remember entering into a hedge position is a way to lock in potential future exposure to a commodities volatility, however just because you think prices are going up in the future does not necessarily mean that they will. Should prices slide and not rise, for example the mentioned Utility “buy position” becomes a loss margin call cash exposure. The position now has a loss associated with it.

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Energy Trading and Risk Management ETRM-CTRM- Hedging Strategies

Post by admin on July 4, 2011

The Basics of Energy & Commodity Risk Management ETRM-CTRM- Hedging Strategies – Blog 1 of 2
Pioneer BannerCompanies that are exposed to commodity price volatilities often find themselves looking for ways to mitigate the price volatility in order to better predict or mitigate their commodity price exposure into the future. This is easier said than done, especially in today’s wildly volatile marketplace. Nonetheless, companies need to find ways to manage this exposure for many competitive reasons. Many look to consultants that specialize in energy trading and risk management –ETRM or commodity trading and risk management –CTRM to provide guidance in establishing a basic risk management (margin limits etc.) and hedging strategy. Once policy and procedures are defined companies can begin to execute the hedging strategy.

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