PORTFOLIO OPTIMISATION
From this simple example, it is evident that just to meet one of
the constraints, multiple options must be explored and each one of these options must be evaluated against multiple factors that affect profitability and risk level. Most companies today manage extremely complex portfolios comprised of asset and contract types, each with high counts of contract rights and obligations. These portfolios span multiple regions throughout the world with each region having different operational conditions, multiple commodities grades and specifications. To achieve the maximum possible profit from such portfolios,
firms must account for hundreds of constraints. Each of these constraints can be met through hundreds of possible options and each of these options needs to be evaluated against hundreds of factors that impact value. This requires assessing millions of variables and then selecting the ones that result in an optimal portfolio. This is only possible through systematic, information- based optimisation tools and processes. Companies will need to move away from traditional approaches to decision making and focus on systematically integrating market- based optimisation into their decision- making processes to make the most out of their current asset base.
Implications As an organization moves towards
have sufficient
visibility into all the
execution options around contracts or their utilization level, let alone whether that utilization level is at maximal value.
The second hurdle is information
transparency. Firms will need to systematically capture all the rights, obligations and optionality in each of the organization’s contracts and similarly model all the assets and related forecasts. They will then need to integrate the disparate transactional systems that provide current positions, exposures and inventory and use this
information for running the
optimisation processes. But the outputs of the optimisation process are no less
To truly leverage the entire portfolio of
assets, the business needs to be thought of and organised in an integrated way
optimisation, it will have to overcome two hurdles. The first is change management. Most organizations have defined organisational boundaries or policies around different commercial and asset groups that prevent these groups from operating in ways that best leverages the optionality embedded in the portfolio. To truly leverage the entire portfolio of assets, the business needs to be thought of and organised in an integrated way. This will lead to new structures and roles within the company for which there is often significant resistance. Overcoming this resistance is often the biggest challenge and, if it cannot be overcome, then an optimisation program within the company will likely fail or at best be significantly suboptimal. In addition to the organisational structure, if the employees who operate the day-to-day business are not engaged and supportive, then the business cannot move in this direction. Often their first concern is the perception that their work is being replaced by systems. In reality, they will now have powerful tools to help with decisions and operations but will likely need some retraining. Some organizations feel that their assets are already highly optimised and cannot be further optimised. Often, however, users do not
complex than the inputs; there will be a large volume of data to parse through to understand the recommendations that are being made and the drivers used to make them. Generally, both of these traditional information transparency challenges are satisfactorily handled through modern day integrated information systems and user-centric visualization designs for large data volumes. For energy companies or organisations
that want to maintain or grow their competitive advantage and utilize their contracts and assets to outperform their competition, they must not only focus on efficiency and cost savings but also on growing revenue by advanced physical portfolio optimisation using systematic information tools and processes. •
Rashed Haq is Vice President and head of the Physical Portfolio Optimization practice at Sapient Global Markets, based in Houston. Rashed specialises in trading, supply logistics and risk management. He works with oil, gas and power companies to create innovative capabilities, processes and solutions for their most complex challenges in commercial and business operations.
Aditya Gandhi is a Director at Sapient Global Markets based in Gurgaon, India. He is an expert at implementing sophisticated trading and logistics solutions for leading global asset managers and large-scale energy organizations for both physical and financial asset classes.
Sid Bahl is a Director at Sapient Global Markets based in Houston, Texas. He specialises in asset valuation and
portfolio optimisation. Sid has helped financial and energy companies implement and adopt complex optimisation and risk management solutions and tightly integrate these into their decision-making processes.
www.Sapient.com March 2013 49
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