Archive for April, 2011

Due to overwhelming demand to explain the statement “Frankenstein was most probably an RA vendor” (well, not really, but it helps with a little thing I call my ego), here is the follow up to the statement.

Some stories I have heard about RA practices and the gambit of RA are incredible. I have put together a choice selection for the perusal of TalkRA’s esteemed audience. What follows is a set of activities which are apparently being performed from the RA system:

a) Dealer Hierarchy Management (not assurance, actual hierarchy management)
b) Incentive Analysis (again, not assurance but actually recommending how incentives should be structured)
c) Margin Analysis & Accounting verifications (and poof, there goes the product & finance teams)
d) Be a parallel billing platform (as a redundancy, not completely in jest)
e) Make coffee for the analyst while playing “Serenade for Strings in C major, Op. 48: 4th movement, Finale by Peter Ilyich Tchaikovsky”

Now, anyone who has read Mary Shelly’s Frankenstein would remember a turning point in the story where Dr. Frankenstein, after spending countless hours in morgues, suddenly unravels the mystery of what animates the organic mass which is the human body. Of course, like any scientist of questionable intentions (as all scientists in novels are required to be), he decides – “Hey, why don’t I collect and collate bits and pieces from deceased people and see if it can be brought to life”. And the rest, as they say, is history.

Do you, perceptive reader, see the parallel? What happens when RA is misunderstood to be a cover-all solution? What happens when RA goes beyond assurance and starts sitting within the core business chain of a Telecom Operator? What happens when a core RA team demands non-core functionality from an RA system? Where do we, as conscientious RA professionals, draw the line between true-blooded assurance activities and core systems monitoring, maintenance and redundancy generation?

From a parallel perspective, let me share what I have learnt about Internal Auditing. From a paper by Mr. P Sudhir Kumar, I have seen that it is important to not only highlight the “core roles” of a team, but it is also important to identify “legitimate roles with safeguards” as well as “non-core roles”. I am of the belief that this is a lacuna in the current RA atmosphere.

 

Frankenstein’s Monster turned out to be a creature in search of his true identity, and in its search, it made the life of its creator hell. By attempting to make an RA solution which is not focused on core assurance, the risk a vendor takes is trying to step outside their domain competency and of course, the risk to the telecom operator is a half-baked solution. If the vendor has the necessary breadth of knowledge in parallel product lines to support additional specialized functionality, then I suggest go right ahead. If not, then remember, the monster takes your name, as it happened to Frankenstein, and drags you down with it.

A simple recurrent phenomenon to demonstrate this fact is the Rating functionality within RA solutions. I personally recommend against my customers from walking down a full-blown, 100% re-rating + discounting + billing approach. There are various methods to intelligently sample rate-plans and ensure a cyclic (or periodic) coverage. Such methods can be performed either on a Subscriber sample basis, or a regional basis, or a rate plan set basis, or ad-hoc sampling basis etc. The advantages are numerous, but to list a few arguments in favor of sampling:

a) Do you really want to maintain 2 parallel rating systems? For true rating assurance, we should never copy the setup directly from the billing systems, for in this case we are merely replicating the error. We should ideally re-enter the rate plans in the parallel engine with an understanding established about what the marketing tariff plan means. This means that every rate plan which gets edited/added/deleted etc. on the billing platform needs to be maintained as such on the parallel engine as well, if we walk down the 100% re-rating and billing path.

b) Do you really want to replicate the hardware which has gone into your billing platform? RA systems will not magically reduce the rating & billing hardware to half. If you want full-scale re-rating and billing, the same amount (or marginally different amounts) of hardware would go into the RA system rating platform as well. Instead of using it for only rating, I would personally use it for future expansion areas as well as powerful record matching functionality on a bulk data basis. But hey, that’s just me ;)

Perhaps I am being contrary to popular belief, but RA vendors do genuinely have the customer’s best interests in mind. It definitely suits us to have happy customers. This is why I believe, personally of course, that instead of saying okay to every requirement; it is beneficial to understand if all checks and balances requested are truly required. The last thing any vendor wants is to let Frankenstein’s monster loose…or do they (insert sound of maniacal laughter, to the background of wolves howling and rolling thunder)…

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In August 2000, Peter Drucker made a startling prophesy: “The corporation as we know it is unlikely to survive the next 20 years”. Legally and financially, yes but structurally and economically, no.

We are all familiar with the technology explosion happening around us. Mergers and acquisitions further influence the features of combined capability in platforms and services provided. So what are the structural changes that lead to corporations being different today? It is called collaborative networking rather than a vertical integrated organisation with strict reporting lines. This should not be confused with a matrix structure. Matrix work groups still function within a defined structure with fixed reporting lines whereas collaborative networking doesn’t.

Collaborative networking is a feature of organisational culture today and RA is probably one of the most established forms of collaborative networking in operations practice. The network is dynamic and “fit for purpose” with the agility to change the components and how they relate to each other legally and operationally as purpose and context evolves. It is not unthinkable that this method of working could be suited to more formal interdepartmental processes. However, most operations personnel are more confortable working in silos with clear boundaries.

Now, you know my take on the boundaries of the Revenue Assurance function. Why, I spent a whole masters degree on it….. Collaborative networking works well were there are no formal boundaries or where these boundaries seem to move in any given direction and at a speed ill understood by those involved, or affected by it for that matter. It is also true that the RA industry sees the boundaries between RA, RM and Fraud greying. GRAPA just launched a Revenue Engineering course, effectively establishing RA’s role in pricing strategies. Dan Baker commented on upselling capabilities inherent in billing system, which could provide RA the capability of assuming revenue generating activities.

If RA lacks clear boundaries and collaborative networking is seen as a possible answer to formalising the RA engagement, how do we stack up? There are five factors affecting the successful implementation of collaborative networking. Let’s apply these to RA.

1. The network must have unifying objectives. This is best captured in the departmental objectives. What is it that the RA function must achieve and what are the KPIs against which this achievement will be measured? Do these objectives align with the other departments’ objectives and KPIs? For collaboration to be effective, the objectives of RA MUST align with the objective of the rest of the organisation. How often is this the case?
2. The collaborative network has a value proposition that ranges from shared interest to mutual self-interest. The stated value proposition of a legitimate RA function is shared interest and it maps directly to the formal objectives of all parties involved. I know of various examples where shared interests had been neglected in favour of self-interest, mutually, no doubt.
3. The collaborative network has an economic opportunity, which varies in degrees of certainty. Economic opportunity describes how well the network has established a way of monetising the value proposition, including collective currencies of the network members. I have difficulty picturing the collective currencies of RA. Considering the collective currencies of a LinkedIN or Facebook membership. There is a clear exchange of value. I don’t see that exchange of value in RA. True, we have a benefits realisation calculation, albeit much debated but value exchange in one direction can be established. What is the currency coming back into the RA function? Other than sales and employment opportunities for vendors and consultants.
4. The organising mechanism is a method through which the members to the collaborative effort come together and manage or govern themselves. Here I believe we have made good progress. We have formal functions, budgets, industry guideline bodies, relative standardisation in RA technology and well organised conferences.
5. Collaboration intensity is the degree to which activities are coordinated and shared, and resources leveraged for the benefit of all parties. Again, as an industry I think we can tick this one off. Perhaps more work required in the organisation where resource allocation may be a challenge but we have passed the hurdle of motivating why such collaboration is required in the first place.

There are unresolved concerns with regard to objectives alignment, the true value proposition and the economic measure of the value proposition. Consider the newly established Revenue Engineering course or the billing system that has automatic upselling identification capability. It is a fallacy to reason that just because the training course was passed or the upselling system capability is operational, RA automatically becomes responsible for those activities. Aristotle is giggling in his grave. Any person reading this blog objectively would argue that it does not imply RA to take on that responsibility, neither expects it to do so. It merely means that the capability and capacity to do so, exists. Yet, this is not our reality. The greyness overtakes. Like the old adage of a frog sitting in slowly boiling water. It does not leap out but bubbles to a soup.

We make these invalid inferences unconsciously and thus the boundary stays fluid. And next year we continue the debate on the factors to include in an industry standardised benefits realisation calculation. Why? Because our objectives aren’t aligned and our value propositions are not understood or truly accepted. If I don’t like a LinkedIN group, I leave the group. If I don’t find benefit in chatting on-line with fellow researchers, I remove myself from that discussion forum. If I have a Nah-nah amongst my Facebook friends, I delete him from my list. Can Customer Care remove itself from the RA function involvement because the RA analyst hammered it on inadequate bad debt collection methods but failed miserably in identifying failed service activation processes timeously to prevent the Call Centre queue from falling over? No it can’t. So where is collaboration?

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Again, I have been MIA from the TalkRA roster for quite a while, but the truth of the matter is that I have spent the last year in a parallel world. Of course, there might be some among you who decide to prove that this is not true and you saw me in a conference or a customer meeting or something, but rest assured, that was a doppelganger I employ from time to time for tax reasons (apparently, slipping into an alternate dimension doesn’t exempt you from paying taxes).

Now in this parallel dimension, many things were the same as in our world, but there were some glaring changes which literally leap out at you. To list my three favorite aberrations:

a)      Revenue Assurance is now incomplete without a minimum of 80,000 checks

b)      TMF is for hobbyists and there are no real RA standards

c)       RA is now ruled by “Industry Buzzwords” as opposed to real work

My dad never tires of reminding me about how his generation was the best that ever was or ever will be. Reason, you ask? Simply put, technology and quality of life took a quantum leap within a span of 50 odd years. His generation saw radios with diodes and mobile phones which looked like a car radiator. Air travel was something Aladdin and his buddies did. His perspective is that today, due to the ready availability of everything, we are jaded. I didn’t really buy into his viewpoint till last year.

RA has steadily become a cover-all application. There was a time, in my humble opinion, when RA was about protecting the bottom-line. It was genuinely about covering the bases and making sure that the revenues you deserve as an operator was landing squarely in your pocket. Furthermore, it was about making sure your pockets didn’t have any holes. Now that RA systems are a dime a dozen (here, I lose all credibility as a vendor), the focus has been diluted somewhat.

It is again my opinion that when a RA practice starts out, it is important to define your RA coverage based on what impacts your business the most. My logic here is that, when a new system is being implemented, it is important to show the benefit of the system as soon as possible. The idea being sustained ROI helps in gaining management support for when you want to expand the remit of the function. Personally, when I am called in for a consulting engagement, I follow an extremely simple process, defined as follows:

If the size of the RA team is 10 people, and as a vendor I recommend 120 daily audits, there are a couple of things which would happen:

a)      The RA analysts would grow increasingly frustrated by the bottomless pit which is their daily case-load

b)      The RA managers would get increasingly frustrated by a system which keeps them from their families and forces them to live in caves without a hint of daylight for months on end

c)       The team decides to march to the vendor headquarters at night with pitchforks and torches to have a “Conclusive Discussion” (P.S. – On a related note, Frankenstein was most probably a RA vendor, but more on that later)

It is important to understand the “Boundaries of Efficient behavior” as I like to call it. Boundaries do not refer to only one or two items, but the universe the RA team operates in. I would break it down to the following items:

1)      Size and experience level of the RA team, including future hire

2)      Operational Expenditure from IT to support the RA team

3)      Crystal clear reporting cycles with well-defined action paths

Just to be clear, I am not against a large RA scope – I merely do not recommend it when you start out. Like riding a bicycle, any “investigation heavy” function like RA needs a bit of a teething period during which a Plan of Action and Standard Operating Procedures get purified and cemented. Trying to do everything at once is a recipe for disaster.

The second thing which was a bit surprising, though closely related to the first point, is how the TMF RA guidelines are seen as too sparse and high level by some practitioners. I respect their point of view, but then I fall deeper into the rabbit-hole where the Mad Hatter is now telling me that RA is responsible for Network Optimization and Bandwidth Allocation and what not. Again, as I sip my tea with the Queen of Hearts telling me that the crumpets served by GRAPA are far tastier, I try to expand my view to see where I lost track of Self-Organizing Networks coming under the gambit of RA. I like the RA guidelines, because it follows a thought process which is logical. Here again, my attempt is not to limit the scope of RA, but to see a well-defined, process-oriented growth in the practice as opposed to “Weed Growth” theory. “Weed Growth” is another term I’ve coined for a RA scope which is created with no consideration for the resources it saps either internally (as in providing Analysts with a scope they are not ready to handle) or externally (when a field is introduced in a core network element to simplify RA’s task while necessitating rework in other downstream elements). Without building a synergistic growth model, I have personally seen RA departments paint targets on their backs from other teams (normally from IT). Revenge is a dish best served cold, and apparently server rooms are kept quite cool – if you get my drift.

Thirdly, it is not uncommon to hear a RA head ask you about “Customer Experience Management” driven Revenue Assurance nowadays. There are ways to highlight the impacted subscriber set due to certain issues (eg. if a rate plan is over-charging, we can pull out the subscribers who are impacted due to this error and send out mails to them, apologizing for the same), however when you start defining your checks based on individual subscribers there is a huge overhead that is being introduced from multiple aspects. For example, if the checks were being defined on a per subscriber level, then the rate plan scenario I mentioned before would span hundreds of thousands of cases for investigation by the RA analyst. Consider the alternative, where a single case is created but we can identify the impacted subscribers. We achieve the same thing, but in the first case at a huge man-hour cost and IT resources perspective. There are intelligent ways to utilize the data from RA for a whole host of activities. Some good ideas which were suggested by operators were:

a)      Use the RA Platform for Internal Audit

b)      Extend the analytics present in RA to enable Product/Service Performance

c)       Usage of data within the RA Universe to enable Cash Automation (primarily related to Prepaid  Channel Assurance, with extension to financial platforms)

All in all, last year was fun. We had brand new challenges, we saw a definitive leap in RA practices around the region and we had our R&D team come out with a Root Cause Advisory engine. I have a feeling that the upcoming year will see the expansion of RA into a truly integrated ERM framework. On a personal note, hopefully, I increase my blog run-rate to more than 1 per year!!!

 

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I have never been the CFO of a telco, but I have met quite a few. Louis Khor, who works for Papa Rob in the preposterous role of “GRAPA Research Director”, has never been the CFO of a telco. My guess is that Louis Khor has met rather fewer CFOs then me. If you forced me to give a number, I would estimate he has met approximately zero CFOs. Why do I say this? Because I read an old post of his where he uses the term “CFO” a grand total of 32 times. Anybody who tries to tell you they know what CFOs want, over and over and over, is doing so because they think you must know nothing about what CFOs want. That gives them free reign to make up the most incredible fantasy version of real life, which I would now like to eviscerate. And why should I do this? Well, let me just say that I find it offensive that somebody with a website called I LOVE Revenue Assurance tries to give lessons in the subject of RA without first checking his facts. You might say I am critiquing his research skills. Or you might say I think he is an out-and-out charlatan. Either will do.

But before I rip into Louis’ fantasia in C(FO) minor, you may be wondering why I visited Louis’ site. Well, I have a theory that goes like this. Papa Rob is always launching new campaign initiatives, new channels of communication, new programs etc. But he rarely mentions all the old ones. So when GRAPA does something relatively high profile, where they profess themselves to be the heroes of RA, and not the arch-villains that they really are, I like to wait a while and come back later, to see how long their heroism lasted. True to form, I visited I LOVE Revenue Assurance and found… that it is dead. Perhaps Louis has fallen out of love with revenue assurance, because he managed 22 posts in June 2010, one post in October 2010, and none since. Here is a memo to Louis from somebody who really really loves revenue assurance: 442 posts since October 2006, and still going strong. Now that is love. A tough love, but love all the same. All Louis had was a brief and tawdry affair.

So what did Louis, the man who whispers sweet nothings about RA, say in his very last post, which was dedicated to what CFOs supposedly want? Read on, and I will give you my take on what CFOs really want, as we go through it…

CFOs Want to Predict The Future – Here’s How With Revenue Assurance!

Well that is a bad start. CFOs need lots of forecasts, but RA has got to be one of the last places they would turn to for forecasting. After all, they employ a whole lot of other people in Finance to do forecasting. 10/10 for ambition but 0/10 for getting along with your colleagues in Finance who actually get paid to forecast on a full-time basis.

When it comes down to it, CFOs are primarily concerned with “do I have enough money to run the business.”

That is their primary concern? In other words, their primary concern is ‘will we be bankrupt tomorrow’? You have to hope that the average CFO is working on a level slightly above speculating if the company will disappear overnight. Maybe not Scott Sullivan, former Worldcom CFO, who spent 4 years in prison for his part in their accounting fraud, but then he was too busy inventing ingenious frauds. But your average CFO is doing quite a bit better than turning up to work on a morning without knowing if he will be in a job come the evening.

They may delegate that responsibility to the controller, or to various Line of Business managers, but the fundamental need to ensure that the business has enough money to function effectively does not go away.

So are we all clear on this point? If the business collapses, that is a bad thing. Glad we got that resolved, in case there was any doubt about it. Let us hope the other CxOs also take a passing interest in the subject.

Because of this, CFOs are constantly looking to any indication of how the business is doing, and ways to forecast a telco’s performance in the coming months.

Err… not really. CFOs are not constantly looking for any method of forecasting performance. They prefer to use good methods.

Hard as it is to believe, CFOs are not opposed in principle to losses or leakage (though no CFO will admit to actually being happy about them). They are more concerned when these losses are not detected early and only become evident months after they actually occur. This leaves CFOs no time to plan for how to address them – through adjusting the budget in line with such real-world conditions.

And this is where Louis goes horribly wrong, and never really recovers. This is what they teach you on the first day of CFO school: cash is king. It means no matter what Louis Khor or anyone else says about revenues or profits or whatever, you can only spend cash if you have cash. The thing about cash is that it is not mysterious. You tend to know if you have cash. A decent CFO would know, anyway. The thing with cash is that you do not need to know anything at all about revenue leaks to work out how much cash the business has. That is because cash is cash. Did you have some money, did you get some money, did you spend some money? That kind of thing. So if the telco expects to earn a million dollars in revenue from selling its services, and the amount of cash they collect is zero, then the amount of extra cash the CFO has to spend is zero, and the CFO should be able to work this last bit out, without needing to be able to tell the difference between a situation where a million dollars worth of services were sold and a situation where nothing was sold. In short, you can know what your cash position is without knowing anything about revenue loss.

A CFO’s Worst Nightmare

When your revenue figures are suddenly far less than projected based on your forecast and your sales figures, you end up with large cash flow problems that severely affect how the business can be run.

See above. Yes, if you sell a lot less than you expected, or collect a lot less cash than expected, then you do have less money. That is a problem, especially if you need to spend money. But where does this ‘suddenly’ come from? To a CFO, nothing happens that ‘suddenly’. They do not go into work and find the firm has ‘suddenly’ gone bankrupt. CFOs get paid a lot to know what is going on, and if that was not enough incentive, they deal with hundreds of annoying auditors who are dying to point out every silly glitch and slip-up. And because CFOs need to know what is going on, poor old accountants get lumbered working long hours to tight deadlines, to ensure the CFO knows what is going on, all of the time. A lot of people provide vital information to the CFO. RA and Fraud Management is a piece in the jigsaw, not the whole puzzle.

Huge sudden unexpected shortfalls in revenue due to revenue loss or fraud that were also undetected and not represented in the sales figures, are often a CFO’s worst nightmare.

Everything is very sudden in Louis’ world. Imagine him crossing the street… “I walked out into the middle of the road without looking, and then a car suddenly hit me.” Well, it might not seem so sudden if you bothered to look first. So only the daftest CFO in the world would look at sales numbers and ignore their cash position. Imagine that CFO… “I can see we have great great sales figures! I won’t bother to look to see how much cash we collected, as it is inevitable we will get it all… WHAT? We didn’t get all the cash? That was a sudden surprise!” You do not need a revenue loss or fraud for the sales figures to not match the cash position. In fact, factors like timing differences and bad debt make it inevitable that the two will be different. Hence Finance functions forecast their cashflows too. Yeah, it is bad if the firm gets less cash than expected, but it would be a pretty useless CFO that ran the business so close to the precipice of collapse that he has a panic attack about every new fraud that comes along.

These shortfalls can lead to severe cost cutting, or borrowing large sums/re-capitalize at extremely short notice.

Oh boy. Where do you start pulling apart nonsense like this? First off, cost cutting usually increases cash costs in the short term. Make somebody redundant and you have to pay them off, cancel a contract and pay a penalty… that sort of thing. So this panic cost cutting scenario is pretty silly. If the business was that desperate, it would probably just file for bankruptcy and try to negotiate with its creditors. Second, telcos always borrow large sums. They are running a big business, not a mom and pop store. Of course they borrow large sums. At any point in time every telco everywhere owes large sums. These loans all need to be serviced, so the question of how to respond to disappointing operating cash inflows is only one of degree. After all, telcos borrow loads to make huge investments which take years and years to pay off. That is what telecoms companies are all about. And as for re-capitalizing at short notice… pull the other one. If the company is not borrowing money, it must be getting extra cash from shareholders. Imagine that – an exec team has to turn around and demand the shareholders pump in extra money because they ran the business so badly they could not cover operating fluctuations using their credit facilities. Yup, that would be a nightmare. First off, the shareholders would demand the sacking of all the execs responsible for this ‘sudden’ turn of events. Luckily, that rarely seems to happen in practice, and never because of a ‘sudden’ revenue leakage.

If a CFO knows that losses are occurring, or are going to happen, they can plan and adjust the budget accordingly. CFOs deal with losses all the time, what they don’t like are SURPRISES. This is why they use whatever tools available to forecast how the business will perform in the coming months, in the hope that those forecasts turn out to be accurate and meaningful by the time revenue is finally accounted for.

Groan. ‘By the time revenue is finally accounted for’ – that would be the time that cash is reconciled to revenue. Maybe they should just keep an eye on the cash position…

Planning, Forecasting, Wishing, Hoping

One of the key planning tools a CFO has is the budget, which is effectively based on a forecast of sales activity for the coming year. A forecast of sales activity is borne out/proven by the actual sales numbers that occur. This in turn is an indication of how much revenue will be received (once service is delivered), and the amount of profit that will be made after direct costs are taken out.

So whilst the average telco spends zillions in capex, Louis has simplified them to sales in vs. direct operating costs out. It is a good job the average CFO has a more detailed understanding than Louis. Perhaps it never occurred to Louis that profit can be affected by capital write-down and indirect costs too. And anyway, all of this is not relevant to the ‘sudden nightmare’ scenario discussed above, because ‘sudden nightmares’ would revolve around having inadequate cash. After all, lots of telcos go on for years and years without being profitable.

But even though forecasts are regarded as an educated guess based on past performance, they are incredibly important, because that is what the CFO uses to plan until interim numbers (like sales figures) come along. These interim numbers allow the CFO to make adjustments and re-assess the budget. Of course in the end, revenue and profit will be accounted for – but by that time it’s often too late. The earlier a CFO can make decisions, the greater effect those decisions will have.

I have no idea what the CFO is meant to be deciding here. How much to spend on paper clips? Or how much to spend on rolling out LTE? Guess what, if you are going to spend zillions on capex, you sort out the financing needed for it. You do not rely on operating cashflows and then panic when they fall below target.

But Marketing and Sales Say We’re Going to Do Better Than We’ve Ever!

Realistically, the only way CFOs can have confidence in the forecast of sales is by implementing marketing assurance, so they know what the marketing people tell him will be the “lift” from their activities will have some actual relationship to reality when the sales figures come in.

So now we have ‘marketing assurance’? People have been working in forecasting since the dawn of accounting, but now we have ‘marketing assurance’. Some people really do seem to believe the world only comes into existence when they open their eyes. The truth is that there were people who did jobs looking over a company’s finances before Louis Khor was appointed Research Director for GRAPA, and even before anyone had ever got a job in RA. They just did not call their jobs ‘marketing assurance’.

But in the end, what CFOs are most concerned about is not forecasts, or even sales figures. They are concerned with the revenue that comes from rendering service. More importantly, they are concerned about the profit this revenue represents.

WRONG!!!!! Cash is king. A business can be profitable and go bankrupt. So CFOs think about plenty more than revenues and profits.

In particular, this manifests as the margin a telco earns once direct costs (such as payments to interconnect/roaming partners) are paid out.

Louis must be the only person in the world who thinks CFOs take no interest in capex or indirect costs.

In effect, forecasts and sales figures are simply ways that CFOs can help themselves judge/predict how well the company is going to do once the accounting is done – for instance at the time of a periodic trial balance. These management accounting balances help a CFO get a sense of whether the sales numbers were really a good indicator of how things were going.

Well, at last there is something I cannot argue with. But all Louis is saying here is that CFOs compare their forecasts to the actual results… hardly a stunning revelation.

The Beauty of the Truth – or Reality

The way a CFO can ensure that the sales numbers are a good indication of reality is through revenue stream assurance (leakage control) and margin controls.

If they were super stupid they would do it like that. How about they compare their sales numbers to the amount of cash they get? That would work too. There is a reason why people take an interest in ratios like DSO. It tells you something useful, even if you had no controls whatsoever.

That way when the final margin/profit is calculated and accounted for, there are no big surprises that can reasonably occur. This is because, to a large extent, whatever was sold was billed and realized, and done so in a way that is in line with the margin assumptions that were made.

Or you could just look to see how much cash you were getting.

This is the key value that Revenue Assurance can provide as a finance function that reports to the CFO. Revenue Assurance can give the CFO confidence that the numbers being used to forecast, adjust budgets and make business decisions are actually useful and accurate and not random numbers that have no relationship with reality.

Yet, peculiarly, the absolutely most basic control in finance is to reconcile your cash position. Hence another saying from day 1 of CFO school: ‘revenue is vanity, profit is sanity, cash is reality’. But RA teams do not tend to be the ones reconciling cash. Why? Because somebody was doing it long before RA showed up. Give those professionals some credit, and do not pretend the RA team is the last line of defence. The RA team may add lots of value, but other people working in finance serve a useful purpose too.

Big Money, Big Decisions, Big Problems

When a CFOs get funds, decisions need to be made such as:

* Do I ring fence those funds because I know there will be substantial losses coming, or bad debt that will never be collected?

Double groan. ‘When CFOs get funds’…? Louis makes them sound like they stare out of the window all day, and occasionally somebody surprises them by throwing a sack of money on to their desk. CFOs always have funds, are raising funds, planning what to spend with funds, and checking that their plans and forecasts match reality.

As for bad debt… now Louis really is showing his ignorance. Even the most junior auditor knows that the firm needs to estimate its provision for bad debt. The question is not ‘if?’ but ‘how much?’

* Do I invest the money in new equipment, more marketing, hiring more staff etc. because the forecast/sales figures indicate a potential huge rise in revenue and a need for increased capacity to capitalize on it?”

Telco reality: plans and strategies that take years to execute. Louis’ imagination: “what should we do next week?”

If CFOs are not sure of the forecasts and whether the sales figures will be borne out by the revenue figures, they have to play it safe.

Triple groan. Nobody knows for sure whether a forecast will be met or not, for hundreds of reasons. RA maybe deals with a few dozen possible causes of planning variance. But that does not mean CFOs are forced to ‘play it safe’… whatever that is supposed to mean.

They may then miss market opportunities, because they never know what surprises are in store, hidden in the overoptimistic forecasts and inflated sales figures that ultimately manifest as lower than expected revenue due to leakage/fraud.

See above. Whilst most of the telco world buys spectrum, raises loans, negotiates contracts over a timespan of years, Louis talks like one bad sales day will spell imminent disaster. Think of this way – what if people just made fewer calls one month? What then? Would lots of telcos go under? The difference made by RA, whilst significant, is not hugely greater than the difference between a month where people made a lot more calls than average and a month where people made fewer calls than average. And nobody has devised a way to force customers to spend money just because the telco needs the cash.

And even when bad things do not happen, and no surprises pop-up, that is still bad, because the CFO is left with money he could have spent but didn’t, which represents dozens, even hundreds of missed investment opportunities.

Quadruple groan. So whilst telcos are pitching billions into network rollout and spectrum auctions, Louis thinks the business is going to underperform because it… erm… well, I do not know what Louis thinks the business is or is not doing with that extra cash. Most CFOs would put it in the bank. Earn a bit of interest, or pay down some debt. Louis must think they stuff it under the mattress. But even that would be better than spending every last available penny on every possible ‘investment opportunity’ that they can think of. Telcos are a business, not a ‘get rich quick’ scheme.

That ultimately manifests as lower future/expected revenue over time.

You see, the problem with Louis is that he has no sense of scale, at least as appropriate to a CFO. When you make multi-million dollar decisions that commit your business to a strategic path that you hope will give you a competitive advantage over rivals, you are not going to break a sweat because Louis Khor thinks you missed an opportunity because operating cashflows were slightly better than expected.

At the other extreme,

When Louis uses the word ‘extreme’, he really means it.

a CFO can overspend and not have enough money to run the business by the end of the year

Actually, you need money all the time, not just at the end of the year. Paying suppliers, servicing loans, paying your staff… it happens all during the year.

because he trusted the forecast and sales figures that ended up not being borne out by the final revenue numbers. This cash flow problem will mean reduced budgets, staff cuts, and an inability to invest in potential future revenue streams.

Is it too much to say I feel a quintuple groan coming on? How about ‘not paying a dividend’ as one of the options? Shareholders like dividends. CFOs really care about shareholders. After all, shareholders own the business. But if there is no money to pay them, the telco does not pay them. Funnily enough, I have yet to hear of the telco that did not pay a dividend because of ‘sudden unexpected revenue leakage’. On the other hand, as mentioned above, staff cuts would be a really stupid way to deal with a cash crisis. You need to spend lots of cash in a short period when you make staff cuts, because you still have to pay off the people who got cut. Unless they have no employment laws or trade unions in the country which the firm operates. Even so, I doubt that any CFO would risk destroying the business to save himself the bother of raising some short-term finance to handle liquidity problems. On the other hand, an average CFO would cut wasteful discretionary spend. A good example would be eliminating the budget for GRAPA training.

And all this because revenue assurance wasn’t involved in ensuring the figures were accurate,

There we have it. Everybody working in telcos, the CFO included, is an idiot… except for the people in RA. I like RA. I love RA. But not so much that I think anybody who has a job outside of RA must be an idiot.

had integrity and not subject to large amounts of fraud or leakage that lead to surprises and abrupt needs to borrow money or drastically reduce costs.

Worldcom went bust. Global Crossing went bust. NTL went bust. Other telcos have gone bust. But none went bust just because they suffered fraud or revenue leakage. They all had more fundamental issues. If you believe the old saying ‘count the pennies, and the pounds will look after themselves’, then you are wrong. Spend all your time counting the pennies, and you miss the big picture. That is why CFOs, thankfully, spend most time looking at the big picture, and delegate the small stuff. Louis is one of those guys who will never understand the phrase ‘penny wise, pound foolish’. He may be ideal with the small stuff, but should not pretend that lots of small stuff = some big stuff.

How Does a CFO Determine Their Appetite for Risk?

The question is not whether a CFO needs this assurance, its how much assurance does one need.

Let me remark that, all along, I felt Louis must have been cutting and pasting ideas from what he has read elsewhere. He certainly never heard any of this nonsense from a real CFO. For me, when Louis casually chucks in the phrase ‘appetite for risk’, it confirms he is copying things he has read without understanding what they mean. Investors set the risk-reward curve, by the way. Just check out telecoms betas. And if you do not know what I am talking about, then do not feel bad, as Louis does not know either. But the CFO would know – and Louis’ post is supposed to be about the CFO.

Depending on the revenue of the company, and the potential upside gains of focusing attention and capital on new investments/opportunities, a CFO may say that a variance between forecast and sales, and between sales and revenue of $10 million USD for a quarter, is acceptable. Most of us would say that’s high.

Most of “us”? Most of who? Now, you know that I love you. And, better still, you love you. Louis also loves you. But the shareholders own the company. They do not need to have love in their hearts. All that really matters is the returns they want, not what you or I want. And that is what the CFO cares most about – delivering the returns that shareholders expect.

But if a telco can realistically expect an upside potential of $50 million USD profit each quarter by continuing with investments at their current/optimistic levels rather than being conservative with expenditure, a CFO may say that amount of variance (and potential loss) is more than acceptable.

I would make fun of this if I knew what it meant.

But as CFOs want more accuracy in terms of the numbers they use to plan, the more they will want to invest in a function that helps them have more confidence in those numbers. The more accurate those numbers, the more faith they can have in them. The more risks that can be safely taken and managed, the more investments can be made to generate potential future returns. And that’s what CFOs really want – they want to be able to invest in things that grow the business, and to be able to do so without unreasonable fear that it’s the wrong decision.

In summary, the reason why all Louis’ arguments are stupid is this: CFOs cannot control customers. If customers chose to buy, or not, that creates a variance in forecasts. People are free to chose how they spend their money, and no forecasting technique known to man can precisely determine how people will spend their money. There is an irreducible uncertainty, that means there will always be variances in forecasting. A CFO would know this. And a CFO knows that the job of RA is not to improve forecasting accuracy, but to reduce inefficiencies and flaws that depress actual operating performance.

That’s why I (and CFOs!) Love Revenue Assurance!

And those were some of the reasons I dislike GRAPA.

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The regulation of the communications industry in North America generates many idiosyncrasies for revenue assurance in that part of the world. One of them is the complexity of intercarrier billing involving Local Exchange Carriers (LECs), and the associated dangers when the necessary data is missing. See here for an interesting article where Darrell Merschak of Carrier Management Systems Inc talks to Dan Baker of B/OSS World about using network probes to fill the gaps.

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