allegro ctrm value study report 2014

CTRM Value Survey and Analysis

2014 Allegro CTRM Value Study Report

Commodity Technology Advisory, LLCwww.comtechadvisory.com

19901 Southwest FreewaySuite 140

Sugar Land, TX 77479Phone: 281 207 5412

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Copyright 2014 Commodity Technology Advisory llc

Report Background and OverviewThe environment of physical energy and non-energy commodity trading and marketing has grown increasingly complex, marked by

globalization bringing about rapid changes in supply and demand patterns, increased regulatory scrutiny and evolving trading and reportingrules, volatility along the entirety of the physical supply chain, and increasing uncertainty as to future price movements. In order to react to

these changes quickly and appropriately, participants in these markets must increasingly rely on a sophisticated infrastructure of software andtechnologies to ensure a complete view of their trading positions and external market conditions that can quickly and severely impact their

values. The core component of these now requisite trading and marketing technologies are energy and commodity trading and riskmanagement (CTRM) systems.

As market complexity has increased and multi-commodity trading has become more common, CTRM solutions have had to become moresophisticated and provide a greater depth of capability in order to capture and value the unique characteristics of the multitude of physical

commodities being transacted along the physical supply chain, from source to market. Given the capabilities of these CTRM systems, they dorepresent a significant investment for any trading or marketing organization, generally trailing only the large scale ERP solutions, like SAP, in

terms of costs to purchase and implement.

Allegro Development, one of the world’s largest CTRM solutions providers, engaged Commodity Technology Advisory to conduct a survey of anumber of their clients to determine their views as to the value of their investment and the operational and financial impacts of deploying

Allegro’s CTRM solution.

This report summarizes the results of that survey and discusses the key considerations for any company seeking to develop their ownassessment of the value of their CTRM technology investment via a Return on Investment (ROI) calculation.

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0 1 2

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SUMMARY - PERCEIVED VALUE

The survey respondents provided a current estimate of the value received from their softwareinvestment (ranked very positive thru very negative). Given the investment required to implement andintegrate an enterprise scale CTRM solution, it is expected that companies who have had the system in

production for a very short period of time will not have yet recouped that initial investment.

Note: One respondent felt it was too early to in their life with thesystem to determine the overall value of the investment.

Of the two that indicated their investment was breakeven, prior todeploying Allegro, one was utilizing a small scale vendor suppliedrisk system and the other was utilizing multiple vendor supplied

systems. The one negative return indicated they were in themiddle of an upgrade to V8 and expected that rank to improve

once the project was complete.

87% believed the valuereceived from their

investment wasPositive or Very

Positive

Would you recommend Allegro to industrypeers that are looking for an commodities

trading solution?

Yes No

100%

100% of the respondentsindicated they would

and/or have,recommended Allegro to

industry peers

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RESEARCH DEMOGRAPHICS

Commodity Technology Advisoryinterviewed individuals at 24

Allegro customers over a severalweek period in the third quarter

of 2014. The companies andindividuals participating in thisproject were initially contacted

by Allegro to seek theirparticipation.

Twenty-two of the respondentswere using V8+ and two were

using V7+

Respondent Company Types

Utility

Merchant Power Gen

Producer

Trader, Merchant

Refining Coop

Others

0 5 10 15 20

OtherNgls

RenewablesFreight

EmissionsCoal

PowerOil or Oil Products

Natural Gas

Commodities TradedLegacy System Prior to Allegro

None, Start-up Business

Spreadsheet/Homebuilt

Vendor Supplied

16 7

1

4



StronglyDisagree

StronglyAgree

StronglyDisagree

StronglyAgree

0 0 1

9

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IMPROVING ACCESSTO INFORMATION

One of the primarygoals of all purchasersof a CTRM system is toimprove the availability

of information to allusers, particularly

those whoseperformance will havethe greatest impact on

the bottom line.

01

810

5

StronglyDisagree

StronglyAgree

Improved visibility into dailypositions/exposures

Improved access toinformation for traders

Improved the visibility andaccess to logistical informationand optionality for schedulers

and/or transportation/transmission personnel

4.5 4.1 3.9

0 0

4

12

6

5



REDUCING COSTSAND INCREASING

EFFICIENCIES

Realizing positive value for aCTRM system is in large partdependent upon improving

operational efficiencies whilecontaining costs

StronglyDisagree

StronglyAgree

Reduced time and effortrequired for month-end close

process

3.8

StronglyDisagree

StronglyAgree

Reduced the human effortassociated with managing

business

3.9

0

35

79

StronglyDisagree

StronglyAgree

Reduced time and effort incalculating valuations

4.0

1 1

6

10

6

02

4

97

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REDUCING COSTSTHROUGH ERROR

REDUCTION

A structured ETRM/CTRM systemwill help reduce user error through

data validation and ensureaccurate calculations of prices and

volumes StronglyDisagree

StronglyAgree

Reduced the number/scale oferrors associated with data

entry

4.1

0 0

5

118

StronglyDisagree

StronglyAgree

Reduced errors associated withsettlement and invoicing

4.0

0 0

6

10

7

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RESPONDING TO CHANGESIN BUSINESS AND MARKETS

In a rapidly changing business andregulatory environment, your CTRMproduct vendor must constantly stayahead of market requirements and

provide the tools and flexibility for eachcustomer to address their specific needs

StronglyDisagree

StronglyAgree

Have been able to developan effective regulatory

compliance program utilizingAllegro.

3.9

StronglyDisagree

StronglyAgree

Ability to more readily reactto industry changes utilizing

Allegro

3.8

0 0

11

7 6

1 12

8

6

8



CONTAINING COSTS

Vendor supplied and supported systemswill invariably cost more, on a direct

basis, than spreadsheets or internallydeveloped solutions. However, that

calculation will change significantly whenone includes indirect costs and

risks/exposures. StronglyDisagree

StronglyAgree

System upgrade/maintenanceeffort and time have been

reduced

2.9

StronglyDisagree

StronglyAgree

Reduced our overall systemcost since migrating to Allegro

vs. previous system

3.0

3

6 6 6

3

1

5

13

4

0

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RESPONDING TO CHANGESIN BUSINESS AND MARKETS

The scalability provided by structuredCTRM solutions, like Allegro, enables

business to grow their market reach andcapabilities without substantialincremental increases to their

technology spend.

Has the number of daily transactionsincreased since implementing Allegro?

Yes No

Has the notional value of your transactionsincreased since implementing Allegro?

Yes No

Have you expanded your footprint of Allegroby adding additional components?

Yes No

Has your business grown into newcommodities/market since you implemented

Allegro?

Yes No

If so, did you implement Allegro whenexpanding your business into these new

markets?

Yes No

80%63%67%

75%75%

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Do you feel that Allegro enables you to deployand/or integrate new, complementary

technologies for better commoditymanagement?

Yes No

96%

ETRM/CTRM SYSTEMS ARETHE CORE OF YOUR TRADING

AND MARKETINGTECHNOLOGY

INFRASTRUCTURE

CTRM systems should integrate easily toother systems and data feeds;

additionally, they should be architectedto facilitate business growth throughexpansion of capabilities in order to

enable better decision making

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Line Description 2014 2013

1 Improved visibility into daily positions/exposures 4.5 4.1

2 Improved access to information for traders 4.1 3.9

3 Improved the visibility and access to logistical information and optionality for schedulers and/ortransportation/transmission personnel 3.9 3.5

4 Reduced the human effort associated with managing business 3.9 3.6

5 Reduced the number/scale of errors associated with data entry 4.1 4.1

6 Reduced time and effort in calculating valuations 4.0 3.9

7 Able to more readily react to industry changes due to Allegro 3.8 3.7

8 Able to develop an effective regulatory compliance program utilizing Allegro 3.9 3.3

9 System upgrade/maintenance effort and time have been reduced 2.9 2.6

10 Reduced our overall system cost since migrating to Allegro 3.0 2.9

11 Reduced time and effort required for month-end close process 3.8 3.9

12 Reduced errors associated with settlement and invoicing 4.0 4.0

13 Has the number of daily transactions increased since implementing Allegro? 75% 80%

14 Has the notional value of your transactions increased since implementing Allegro? 75% 71%

15 Have you expanded your footprint of Allegro by adding additional components? 67% N/A

16 Has your business grown into new commodities/market since you implemented Allegro? 63% 50%

17 Did you implement Allegro when expanding your business into these new markets? 80% 80%

SUMMARY OF RESULTS – 2014 V 2013

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Determining Return on Investment (ROI)Determining the return on investment (ROI) for a CTRM software acquisition can be challenging as one of, if not the,

primary drivers of such a purchase is risk reduction - including price, credit, regulatory, operational and executionrisks. Deploying a modern CTRM solution, like that from Allegro, will when compared to a spreadsheet or manual

process, reduce the risk exposures in virtually all areas of your business while simultaneously improving informationvisibility and enabling better and more profitable decision making. Precisely valuing an avoided event is not possible,

but utilizing your company’s past experiences can inform the value you may or may not place on reduced risks andcan be an important determinate in valuing your software investments.

Other benefits can be more readily measured and are based on your company’s past and current experience inutilizing software to capture deals, manage positions and risks, account for your business, and analyze and report

activities. Whether your most recent experience prior to implementing a new CTRM solution was the use ofspreadsheets, a custom developed solution or another vendor product, many of the changes in terms of costs and

benefits can be reasonably measured and used to calculate an ROI for your software investment.

Return on Investment = (Benefits - Costs) / Costs

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Benefits and Costs to be Considered When Calculating ROI

BENEFITSValue of reduced headcount costs across business process or possibly switch from direct full-time internalstaff costs to variable, on-demand external headcount costs via use of third party consultantsReduced operational risks via saved penalties and fees as a result of reduced errors in areas such asscheduling, Invoicing and paymentsReduced cost of credit and credit facilities due to better management of both cash and credit –this is onboth sides in offering and receiving optimal collateral to support actual trading needsReduced FX costs due to better management of FX and reduced need for FX conversionAbility to optimize trading data costs – i.e. consolidate and reduce Bloomberg, Reuters, and other data feedrequirements?Improved Market Risk Management – improved hedge performance, improved decision making, etc.,yielding improvements in P/L, MtM, and cash management and reduced exposure to negative credit eventssuch as margin calls.Improved counterparty relationships as a result of more timely confirmation and settlement – improvedmarket reputation will reduce costs of finding and negotiating agreements with counterpartiesReduced technical and business maintenance and workaround costs vs. replaced systemImproved identification of trading opportunities resulting in better resultsImproved visibility into current performance reduces management and external (banks, shareholders)anxiety which in turn has an impact on capital requirements and staffingImproved ability to forecast business performance potentially reducing capital requirements and improvingstock performanceImproved auditability and controls reduces chance of compliance issues and decreases costs of an audit.Improved tracking of payment terms and slow payments resulting in faster cash collection or tradingdecisions – i.e. no trade, buy only etc.Marginal ability to attract better quality staff

COSTSInitial license fees or incremental ongoing service or rental fees vs.the similar costs of replaced systemLicense fees for add-on modules or ancillary software such asdatabase solutionsSupport & Maintenance costs – incremental vendor S&M contractcost and internal staff vs. similar costs of replaced systemAdditional fees – escrow for source code etc., if higher than replacedsystemEstimated procurement costs (cost of personnel, facilities andequipment involved in the identification, testing, and contracting ofthe software)Implementation costs including both internal and external costsrelated to human and technical resources for data conversion,training, integration, and testingCosts associated with parallel testing/usage during UATPeriodic upgrade project costsInternal hardware costs including maintenance – live, test and otherenvironmentsOperational issue costs as a result of software deficiencies – if anyWork around costs (man hours, software, custom development) – ifanyCost of on-going or periodic training

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allegro ctrm value study report 2014

Software

ctrm value survey

ctrm technology investment

overall value

multicommodity trading

riskmanagement ctrm

significant investment

initial investment

nonenergy commodity