Revenue assurance

Revenue Assurance (RA) is a niche 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 TeleManagement 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.

This is an extremely crude generalization and does not reflect the priorities in different markets. 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 underperformance 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 cashflows, 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 best known estimates of "typical" revenue leakage come from a series of annual surveys conducted by the Analysys consultancy and research business on behalf of Azure, a revenue assurance and interconnect billing software firm (now merged with Subex to form SubexAzure). 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 series of consistent anecdotes relating to the causes of leakage and means to resolve them. Though there is little objective evidence relating to bona fide leakages approaching this scale in the public domain, 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 level set 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 (for a copy, try emailing[2]).

Typical Causes of Revenue Leakage

Although the scope of revenue assurance has not been agreed, most commentators would agree the following are common examples of revenue leakage:

• corrupted records of actual phone calls;

• lost call records (from either the provider's own network or from a third-party network provider);

• incorrect rating;

• missing components or surcharges on a customers' bill;

• incomplete customer data preventing billing; and

• inconsistency between services assigned to a customer per network and billing.

There is some debate about whether the losses caused by fraud fall within the remit of revenue assurance or need to be managed by a distinct specialization. However, there is no debate that this is also a significant source of financial loss.

External Links

• Global Revenue Assurance Professional Association (GRAPA) is an international, not-for-profit association, dedicated to the growth and development of shared professional revenue assurance practices in the telecommunications industry. http://www.grapatel.com

• The TeleManagement Forum's Revenue Assurance program is a mixed bag. The freedom offered to its members to use the Forum's publications and other communications sometimes delivers constructive and thoughtful collaboration that could provide thought leadership, at other times degenerates into unresolved inconsistency and contradiction. This freedom does at least ensure that a representative range of differing opinions are voiced in one place, even if they are never fully resolved. http://www.tmforum.org/browse.aspx?catid=2140
• The Global Billing Association (GBA) has long promoted revenue assurance as an important activity. Its commentary on revenue assurance is less collaborative and more consistent than that of the TeleManagement Forum, a reflection of the opinions and more directive style of the leaders of the GBA. Expect to obtain balanced advice on revenue assurance, but no reference to alternative points of view. http://www.globalbilling.org/initiatives_ra.php
• A genuine attempt to establish pragmatic and unbiased common terminology in revenue assurance can be found at the website of Cartesian, a specialist provider of Revenue Assurance consulting and tools. http://www.cartesian.co.uk/consulting/common_terminology.htm
• For a blog that sometimes discusses the problems and challenges for revenue assurance that commercial sites usually shy away from, take a look at http://revenueprotect.com/community/eric/blog/