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Does Building a CTRM Make Sense for Your Organization?

So, your company is ready to start evaluating commodity trading and risk management (CTRM) systems. You might have a current system that no longer meets all your needs, you could have grown to a point that you can’t survive on spreadsheets alone or maybe you are a start-up. Regardless of the reason why, it is clear that your organization needs a new CTRM system and this can create excitement, confusion and anxiety.

CTRM systems have come a long way in the last 15 years and there are now over 90 vendors that offer solutions in the ETRM and CTRM space. With each new year, that number only continues to increase and for this reason, many of our clients ultimately elect to go with a best fit commercial package. However, almost all at least consider the build option as part of their selection process. In fact, a study by ComTech, called E/CTRM Software – To Build or Buy? That is The Question, found that 70% of the group surveyed indicated some willingness to consider an internal/custom development effort.

 

WHY MIGHT YOU BUILD?

Below are some common reasons that have caused our clients to build:

  • Trading activity is so proprietary that protecting its confidentiality overrides any other argument for buying a commercial package
  • The business is so complex and bespoke that most commercial packages would require a hefty amount of configuration or development extensions around the product
  • The business is in its infancy (i.e. a startup) so there is hesitancy to make a long-term commitment to a package since needs may change as the business grows

Keep in mind, there are other situations where build may be worth considering as part of the selection and these are just a few common circumstances where considering a build should be considered.

 

WHAT ARE THE FOUR FACTORS TO EVALUATE IF A BUILD IS RIGHT FOR YOU?

If you are still not sure if a build should be included in your consideration set, we have identified four things to consider as you evaluate whether it makes sense for your organization to build:

1. Business Complexity

2. Appetite to be in the software business

3. Timeline drivers

4. Budget

Let's take a deeper look at each one...

 

1. BUSINESS COMPLEXITY 

If you trade or plan to trade only trade listed futures, your business complexity is low and almost all off-the-shelf packages will handle this fine. A spreadsheet and a database could work as well but that may put you in the software business (see point number 2 below). If you have multiple assets, multiple commodities, multiple geographic regions and/or execute more structured product deals with your counterparties, your complexity is high. In this case, you should expect even an implementation of a commercial package to be complex. Building can be a viable option in this case since the implementation will likely require a high degree of configuration and customization. However, complexity by itself should not be the sole consideration.

2. APPETITE TO BE IN THE SOFTWARE BUSINESS 

CTRM projects require bringing together a highly skilled group of individuals to accomplish a complicated task within a specific timeframe. Whether it be a custom build or an implementation, eventually the project will end and the IT organization can then be sized for ongoing support.

The difference is that with a commercial package the software vendor will continue to improve the product, fix bugs and provide regular releases. Your IT staff will of course have to carefully test and roll-out the updates but that can be planned. 

With a custom build effort, you are responsible for all improvements since you are the sole customer. This usually means that a larger team is required to design and implement enhancements which means you must be good at software development. This larger team will also potentially require an even deeper and expensive talent pool (e.g. senior architects and SME’s).  Hiring and retaining these types of people can be costly and they can leave so real effort must be placed to keep them engaged. These costs and management challenges is why it may make sense to go ahead and pay the maintenance fees associated with commercial packages.

3. TIMELINE DRIVERS 

Understanding the critical dates for when the CTRM system needs to be implemented can help determine if build is a realistic choice. Building a system from scratch takes time. Just like a custom suit, the fit will be fantastic but it will take longer than starting with a suit off the rack and having it tailored. If there is flexibility in the schedule and an exact fit matter more than time, then build is an option, otherwise a commercial package is going to make the most sense.

4. BUDGET

What you can afford may dictate your choice. While the off-the-shelf systems are not inexpensive and usually have higher upfront license costs, there are a range of cost options each with their own trade-off. A custom build could be more expensive overall but the costs can be spread out over a longer period. With off-the-shelf products, it’s also important to consider the annual maintenance/subscription fees. Either way, while it’s easy to jump to straight to budget as a determining and often singular factor, we recommend considering the budget implications after all other factors have been evaluated because getting the right solution to enable the business is typically a very worthwhile investment.

Sometimes these factors corollate and indicate a clear direction and other times you may have a limitation in one of these areas that heavily influences your final decision. Keep in mind, these factors can be interrelated and no factor should be considered in isolation. Consider these factors carefully and you will put yourself and your company in a position to make a sound decision on whether to include build as part of your consideration set.

As you walk through your selection, you may ultimately eliminate the build option in the process and decide to go with an off-the-shelf system. If that’s the case, read Four Common Mistakes When Selecting an ETRM System as this will help you in the next phase of the process. Regardless if you decide to build or buy, check out Five Things to Consider for an ETRM Implementation to make sure you have the proper foundation set-up before moving into implementation.

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At Veritas Total Solutions, our team has helped over 100 clients pick and implement C/ETRM systems that are right for them. Our team of experts provide strategic guidance throughout the process, from consideration sets to implementation to on-going maintenance, we can help design and set-up he right C/ETRM systems for your organization. If you are interested in learning more about our specific capabilities, contact us to learn more or subscribe to our blog to stay connected!

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