Revenue Assurance - The Value of Revenue Assurance

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. 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 . 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.