You’ve no doubt heard the terms “back office front office middle office,” but do you know what each group does and how they work together in the energy industry?
While the specific roles and responsibilities vary slightly by industry, “offices” essentially segregate a company’s business processes across different groups. In the financial sector, for instance, the split of duties acts as a checks and balances that help eliminate fraud. In other industries, roles may be separated to mitigate the impact of any errors.
What’s key is that the offices must work together to ensure the business as a whole runs smoothly. Let’s break things down in terms of what’s typically found in the energy sector.
What is front office?
The front office houses sales and client service functions. For a utility, the client could be the end user, the ISO/RTO, or another market participant. Front office workers are responsible for trading, bidding strategies, and forecasting, as well as analysis of factors that can impact energy production, such as the weather.
This team is also responsible for scheduling and dispatching generation through the management of gas pipelines or transmission lines.
What is middle office?
The middle office monitors the risks associated with the activities of the front office. This team determines market risk and exposure on a day-to-day basis, establishes risk controls, manages corporate strategy around risk, and calculates profits and losses.
What is back office?
Those working in the back office provide analysis, technical, and administrative support services for the organization. This group is responsible for accounting and the settlement process, including performing shadow settlements and managing settlement dispute resolution.
Front office vs. middle office vs. back office
Simply put, the front office is responsible for generating income, the middle office makes sure the front office’s activities don’t cause the company to lose money, and the back office manages the money.
Looking at the middle office vs. the back office, both are focused on the operational parts of the business and support the front office’s efforts. It’s important to note that the middle office’s role is evolving as increasingly it serves as a conduit between the trading functions done in the front office and the accounting functions done by the back office.
Solutions for every office
As energy markets grow more and more complex, participants need software tools that both automate processes and make communication between offices easy. For example, PCI’s front-office solution, GenTrader, helps you with trading, scheduling, and portfolio optimization. Our energy trade risk management (ETRM) software enables middle office teams to communicate data on market risk positions, compliance, and the financial impact of trades to the front office. Our back office solution supports ISO-controlled and bilateral trading markets so that settlements can be optimized for a wide variety of market instruments.
Contact us to learn more about how our software can improve efficiencies, mitigate risks, and improve communication across your entire workflow.