By Jon T. Brock, President, Desert Sky Group, LLC

March 8, 2012

Last week I attended the EUCI Risk Management Best Practices event in Chicago where I moderated a panel entitled, Making Sense out of the Data Explosion. Recently, there has been an abundance of coverage on what we are calling “Big Data” and “Analytics” associated with “Big Data.” I found this topic to be of interest because instead of focusing on the increase of smart metering data, it was focused on trading and trading technology centric organizations that are faced with converting voluminous amounts of data into actionable intelligence.

Sponsored by SAS, Ascend Analytics, and RiskAdvisory, the focus on analytics was not the “Big Data” as a result of what the industry is terming the “smart grid.” I asked the attendees if the smart grid was causing the data to grow on the trading side of the house. The answer was “no.” Instead, smart grid data was going to the utility that would then use it for building a better forecast, and the forecast was being sent to the trading and trading tech centric organizations.

The first panelist to present was Patrick Reames, Analyst and Managing Director for the Americas at CommodityPoint. Mr. Reames presented recent research on data aggregation in commodity trading and risk management systems (CTRM). The research indicated that systems specialize in a specific area, be it power/gas, crude/products, or coal, but not one system specialized in all areas. Therefore, the environment is one of multiple systems working together. Data management reporting is handled via data warehouses, data marts, price feeds, bespoke reports, Microsoft Excel, and other various tools. Of the sixty-plus organizations that CommodityPoint interviewed, the data management systems in place included LIM (Morningstar), SunGard Fame, ZE, SAS, SAP, and GlobalView. As mentioned before, the “big data” is not coming from the “smart grid.” Instead it is coming partly from increased market complexity (number of instruments, exchanges, and markets) and increasing regulatory and stakeholder oversight and regulation (Dodd-Frank being a part of this). The result is a need to have a more accurate and timely assessment of positions and risk.

The second panelist to present was Ian Jones, Senior Strategist of Energy Risk at RiskAdvisory (a division of SAS). Mr. Jones pointed out that while the growth in global data generation reaches 40 percent per year, the growth in global IT spend is reaching 5 percent per year. Relevant data is very often a small sub-set of total “big data.” The challenges associated with “big data” risk management include a lack of efficient aggregation and analysis, poor integration, and the need for more visualization. Based on a 2011 Economist Intelligence Unit Survey sponsored by SAS, 25 percent of companies believe a vast majority of their data remains untapped, 53 percent use half of their “valuable” data, and 73 percent report increased data collection. The main opportunity for “big data” risk management is getting faster, better answers. Mr. Jones shared the experience of one SAS customer taking an 8.8 billion portfolio Value at Risk (VaR) computations from 18 hour runs to less than 3 minutes. The resulting benefit was near-real time results as opposed to a day later.

So “big data” in the risk management world means something totally different than “big data” in a smart grid world. The next time you hear the word “analytics” used loosely in industry, get the context it is being used in. It does make a difference.