Revenue Assurance
Revenue assurance (RA) is a business activity most commonly undertaken within businesses
that provide telecommunication services. The activity is the use
of data
quality and process improvement methods that improve profits, revenues and cash flows
without influencing demand. This was defined by a TM Forum working group based
on research documented in its Revenue Assurance Technical Overview [1].
In many telecommunications service providers, revenue assurance is led by a
dedicated revenue assurance department.
Overview
"Revenue
assurance" is a broad umbrella term. It is used both to describe an
activity performed within telecommunications service providers, and is a common
name for a small business unit associated with that activity. Revenue assurance
is a practical response to perceived or actual issues with operational
underperformance, most commonly relating to billing and collection of revenue.
Some of the procedures associated with identifying, remedying or preventing
errors may be undertaken by a dedicated Revenue Assurance department, though
responsibility for revenue assurance is often diffuse and varies greatly with
the organizational structure of the provider. Assuming a provider with a
typical organizational split, responsibilities for revenue assurance primarily
sit between the Finance and Technology directorates, however, revenue assurance
initiatives are often started in a business unit or marketing group.
The
relevance to Finance rests with the responsibility for financial control, audit
and reporting, whilst the subject matter would be network and IS systems as
implemented or operated by the Technology side of the business. Marketing
groups and / or business units (e.g. wholesale or retail business lines) will
often embark on revenue assurance projects in an effort to improve product line
margins. Furthermore, marketing and business units are pivotal in providing
input into the "should be" state of customer bills and products.
The
sphere of influence described by revenue assurance varies greatly between
telecommunications service providers, but is usually closely related to back
office functions where small errors may have a disproportionately large impact
on revenues or costs. The processing of transaction data in modern
telecommunications providers exhibits many attributes akin to a complex
system. However, there is significant disagreement about the ultimate aims and
legitimate scope of revenue assurance teams. This is in part caused by:
(1) the
cross-functional nature of the activity and the consequent need for a variety
of skills from IT, marketing, finance, et al.;
(2) the
difficulty of generalizing across businesses with different objectives and
business models;
(3)
political infighting within each telco about responsibility for revenue
leakages and assurance; and
(4) the
difficulty in reliably measuring the value added by revenue assurance as
separable from underlying performance.
There is
high-level agreement between practitioners about the goals and methods of
revenue assurance, though reaching a consensus on defining the boundaries of
revenue assurance has proved elusive so far. The goals relate to improving the
financial performance by eliminating mistakes in the processing of transaction
data. Some take a more encompassing view of what counts as a mistake, which may
extend as far as questioning the policy set by executives even when this has
been executed correctly. Others take a more open-ended view of the data that is
the subject matter. For example, in decreasing order of frequency, revenue
assurance may cover:
(1)
revenues from retail and corporate sales;
(2)
revenues and costs from interconnect and wholesale contracts; and
(3)
margins and profitability of investment in networks and information systems.
Other
markets have different or more refined priorities. For example, in the U.S.A.
management of wholesale contracts has often been the first objective because of
the complexity of the domestic market resulting from the Federal Communications Commission's
regulatory framework. In contrast, telcos in developing countries may
prioritize management of international interconnect arrangements because of the
risks posed by fraud and arbitrage. A cable supplier or internet service provider that predominantly offers retail
customers flat monthly charges and no limits on usage may be most interested in
assuring the profitability of network investments.
Revenue
assurance is often regarded by practitioners as a low-cost mechanism to
generate significant financial returns for telecommunications service
providers. However, the returns are unpredictable as well as being hard to
measure, which encourages many executives to take a sceptical view of its
worth. Comparable revenue assurance activities do occur in other industries,
such as with billing of utilities or with the licensing of software, and there
are many parallels with financial and operational control activities undertaken
by most large businesses. The rationale for why revenue assurance has come to
be considered particularly important in telecommunications, unlike other
industries, is disputed. Reasonable conjectures are that:
(1) the
fast pace of change and intense commercial competition increase the likelihood
of mistakes;
(2) there
is significant complexity in determining the combined effect of interacting
systems and processes; and
(3) the
high-volume, low-value nature of transactions amplifies the financial
implications of "small" errors.
Another
conjecture is that revenue assurance is a response to changing market
conditions. The thinking is that as markets reach saturation and growth
potential falls off, so the value of maximizing returns from existing sales
increases. This observation has some merit but does not explain the increasing
popularity of revenue assurance in telcos serving growth markets. It also in
part contradicts the assumption of a compelling costs versus benefits argument
for revenue assurance, which would be enhanced in businesses undergoing rapid
change. It is also important to recognize that there is a long history of
revenue assurance activities in some telcos that predates the coining of the
term "revenue assurance".
The
revenue assurance techniques applied in practice cover a broad spectrum, from
analysis and implementation of business controls to automated data
interrogation. At one end of the spectrum, revenue assurance can appear very
similar to the kinds of review and process mapping techniques applied for other
financial controlling objectives like accounting integrity, as exemplified by
those derived from clause 404 of the Sarbanes-Oxley
Act. This
form of revenue assurance is most commonly promoted by consultancies. The size
of such consultancies covers the entire range; the Big 4 all offer some form of
revenue assurance consulting, but there are also niche specialist
consultancies. At the other end of the spectrum, revenue assurance is treated
as a form of reactive automated data interrogation, seeking to find anomalies
in transaction data that may indicate errors and potential revenue loss. This
form of revenue assurance is most commonly promoted by software houses that aim
to provide databases and configurable tools to extract and interrogate a
telco's source data. A less popular form of reactive automated assurance
involves using both software and specialised hardware as a means of extracting
additional data on transactions, for example by creating actual network events
or interfacing directly with network elements to replicate dummy events. As
with consultancies, IT-oriented revenue assurance solutions are offered by both
large vendors like providers of billing and mediation software, and by
specialized niche providers.
There is
some debate about the relative merits of the different techniques that can be
employed in revenue assurance.
As yet,
there is no professional body, no qualifications, and no academic research that
would help to drive consensus about the purpose or methods of revenue
assurance. In part this is addressed by individuals working in the sector
through membership and qualification in related fields such as accountancy and
information systems audit. Some scientific research in other fields is also
applicable to revenue assurance, though most revenue assurance
"facts" rely heavily on anecdotes and oft-repeated truisms. Some of
the most helpful and progressive initiatives in addressing the problem of consensus
and scientific basis are listed below.
The value of revenue assurance
Revenue
assurance is usually understood as a means to identify and remedy, and perhaps
also to prevent, problems that result in financial under performance without
seeking to generate additional sales. The most common metaphor is that of
leaking water from a pipe, where water stands in place of revenues or cash
flows, and the leaks represent waste. The value of revenue assurance is hence
determined by the size of the leaks "plugged", and possibly also
those leaks prevented before they occur, although estimating the value of the
latter is very problematic. The value added also includes the recovery of
"lost" revenues or costs (through issuing additional bills, chasing
uncollected payments, renegotiating with suppliers a refund of costs etc.)
after the fact. This last form of reactive revenue assurance is the easiest to
put a value to, but is in many ways the least efficient form of revenue
assurance; effort is directed towards repeatedly addressing the consequences of
known flaws, and not on addressing the flaws themselves. This can lead to a
parasitical relationship between a Revenue Assurance department or vendor and
the wider business, where the department/vendor finds it easiest to justify its
ongoing existence/contract by repeatedly fixing symptoms and not the root
causes.
The TM
Forum conducted a benchmark survey in 2008 that concluded average leakage, not
including losses due to fraud, was 1% of the gross revenues for those telcos
that took part.[1] The
number of participating telcos was relatively small compared to some other
surveys, but the survey technique was more demanding than any comparable survey
to date. The survey used the most detailed and prescriptive definition of how
to calculate leakage of any survey of its type. The definition was taken from
the TM Forum's own standard on how to calculate revenue assurance metrics [2]. To
increase confidence that participants calculated their leakages correctly, the
TM Forum's benchmark program independently reviewed the results and
corroborated them with representatives of the participating companies. The
survey's average of 1% leakage of gross revenue, whilst still significant, is
notably lower than many other quoted estimates and reported survey findings
about average leakage. This may be because the survey used a very strict
definition of leakage. The survey measured only actual under-billed and
unbilled amounts discovered by the participants; it excluded other types of
leakages such as cost leakages and loss of opportunity leakages, and it
excluded projected leakage estimations that are commonly used (i.e., what would
have been the amount of leakage, if the leakage would not been discovered by
revenue assurance activities). It may also reflect a reduction in bias or
exaggeration in reported leakages, or at least the exclusion of guesswork.
Respondents were given authoritative instructions on how to quantify leakage
based on actual data and were instructed to avoid making suppositions in the
absence of such data.
The best
known estimates of "typical" revenue leakage come from a series of
annual surveys conducted by the Analysys consultancy and research business. In
these surveys, leakage was commonly estimated as being worth between 5% and 15%
of the total revenue of the business. Similar research by other businesses has
generated results in the same range, with none concluding leakage of less than
1% of gross revenue, and some suggesting leakage of 20% or more was not
uncommon. Reasons to doubt these estimates are as follows:
(1) All
the estimates of leakage were derived from the subjective opinions of staff
working in service providers;
(2) All
the research was conducted by businesses wishing to promote their revenue
assurance products;
(3)
Increased annual spend on revenue assurance has not resulted in a clear downward
trend in estimates;
(4) The
estimates were broadly similar even when the criteria for what losses to
include varied greatly; and
(5)
Genuine losses of this scale should be a severe corporate governance issue in
any publicly listed business.
What can
be said with some confidence is that revenue assurance practitioners are able
to provide a vast number of consistent anecdotes relating to the causes of
leakage and means to resolve them. Though there is little objective evidence
relating to actual leakages approaching this scale in the public domain as this
information per se is highly confidential, there are some indirect measures of
data integrity that help give a sense of potential leakage. For example, in
reconciling interconnect costs and revenues between telcos, a 5% variance is
the common practice to accept before a disputed invoice can lead one party to
withhold payment, and a 0.5% variance would be considered industry-leading
practice according to best practice advice issued by the UK Revenue Assurance Group.
Revenue Assurance in Telecom
Although
Revenue Assurance has always been present in the telecom parlance[citation needed] it has
recently been brought at the forefront of the top management[citation needed]. This is
due to several factors including
- Profit:
Increasing cost pressures and decreasing margins. The high profit days for
most telcos are over[citation needed].
They all need to find alternative means to squeeze higher margins by
effectively tracking their revenue.
- Regulatory:
New regulatory structure and compliance requirements[citation needed]
which force the telecom operators to report their revenue accurately.
- Technology
Innovation: Ensuring new technologies and products are performing as per
perceived plans. Keeping up with release of new technologies along with
co-existing of legacy systems.
- Mergers
and Acquisitions: With increase in the number of telco mergers and
acquisitions, organizations are finding it very difficult handle multiple
BSS systems including Billing, Mediation and Rating together etc.
Revenue
Assurance has been a problem for the telecom companies since the very early
stages. Tracking of pulses, minutes, counts, bytes etc. has never been more
difficult. One would think these would be easy for the tech-savvy telco
companies. However, the truth has been just the opposite. In a hurry to release
new technologies in the market, the Revenue Assurance systems are always
lagging behind. Revenue Assurance in a telco environment covers a wide range of
technical and business aspects. An RA operator needs to be aware of both OSS
& BSS processes and internal dependencies to accurately decipher the
revenue code.
What causes the problem
A telecom
organization's revenue chain is usually a very complex set of inter-related
technologies and processes providing a seamless set of services to the end
consumer. As the set of technologies and business processes grows bigger and
more complex, the chance of failure increases in each of its connections. A
revenue leakage is typically attributed to when a telco organization is unable
to bill correctly for a given service or to receive the correct payment. As the
organization grows the probability of revenue leakage only increases.
Where is the problem
The most
debated part of revenue assurance is where to start checking, i.e. at the
network side, the rating side, the billing side, the interconnect side, the CRM
side, etc. However, most surveys and reports state that the maximum leakage
happens during the flow of Call Detail Records (CDRs) or Event Detail Records
(EDRs) from the Switch to the respective rating / billing engines. Some of the
common problem areas are :
- Network
* Signaling problems
* CDRs in Switch not sent to Mediation
* CDRs in Mediation not send downstream
* CDRs rejected by rating / billing system
* Wrong duration on the CDRs
* Incorrect Business rules
* Subscriber provisioning
* Incorrect Routing
- Rating
& Billing
* Incorrect Rejection Logic
* Duplicate CDRs resulting in double charging
* Incorrect tariff plans
* Rating & Billing accuracy errors
* Late rating / billing
* Incorrect configurations – rating minutes instead of seconds
* Incorrect Disconnection
Revenue assurance discipline
Among the
disciplines in revenue assurance are:
1. The
CORE functions of a revenue assurance group: Monitoring, Baselining, Auditing,
Synchronizing, Investigating and Compliance.
2. Decomposing an organization's revenue assurance scope (The Revenue Management Chain).
3. Assessing and minimizing revenue loss risk.
2. Decomposing an organization's revenue assurance scope (The Revenue Management Chain).
3. Assessing and minimizing revenue loss risk.
Source: Wikipedia.
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