Develop a Cost Management Vision

Why develop a cost management vision? Controlling costs within the telecommunications network is hard work. Some projects are easy with a high payoff; others require constant review. Without a clear vision of the outcome, good intentions may falter. Similar to affirmations in self-help books, a cost management vision might read as follows:

  • The architecture of the network (data, voice, hardware, leased lines, etc.) will, by its structure, minimize costs.

  • Monitoring systems will alert management of financial exceptions.

  • Configurations and clusters of technology will be flexible and scalable to reflect declining unit costs resulting from technology improvements.

  • Network investments will match the business culture — no long-term investments for an organization that demands a very quick payback from all its other capital expenditures.

  • Financial commitments for telecom services are flexible and can accommodate acquisitions, divestitures, major application changes, and rapid growth.

  • Telecom should be perceived as an asset — not just a commodity.

  • All alternatives that best support the core business, including outsourcing, will be periodically reviewed for applicability.

    After the telecom cost management vision is developed and tailored to the culture of the organization (risk tolerance, scope and level of desired savings), the next step is to consider how to start.

    How Do Organizations "Make It Happen"?

    Telecom cost management is both a project and a process. A project is needed to gather information and make the right decisions. The process ensures that any gains will be maintained. When considering how to start the process, management should start with the following questions:

  • Does staff exist within the organization to perform the analysis required to manage costs? For large organizations, a telecom cost management project may require months of work by skilled analysts.

  • Does the firm have the appetite to consider telecommunications changes (either technical or procedural)?

  • Is there a bias for or against outsourcing? One note of caution: even if the business culture is strongly pro-outsourcing, it is important to have at least a high-level, in-house understanding of the telecom environment to ensure that agreements with the vendor of choice are equitable for both parties. Another approach is to use the services of a third-party outsource consultant.

  • Do the individuals assigned to perform the initial analysis have the right background for the project? Do they know telecom billing, tariffs, telecom taxation, and industry trends (business and technical)?

  • What outside resources are contemplated — consultants, telecom auditing firms, outsourcing firms, or others?

  • When considering how to move forward with the project, risks should be explicitly considered. For example:

  • What would be the effect of changing carriers? Telecom managers generally dread carrier changes, even if they are dissatisfied with the carrier. Changing circuits and other infrastructure often causes some disruption that users notice.

  • Are users willing to accept technical changes if they cannot directly see the benefits? For example, consider the change from remote dial-up (using a remote access server) to using a VPN (virtual private network) for connecting to the network. Until all the ISPs across the country get their account numbers correctly loaded, remote users might occasionally fail to get on the network. In the long run, it is certainly the most economical practice for large numbers of remote workers, but there is some short-term pain in the transition.

  • Are negotiators for contract changes experienced in telecommunications? Strong negotiators can push telecom vendors for rates so low that the result is not a win-win situation. The telco may be tempted to devote attention to other customers. Also, negotiating for the right prices and services is critical. Why negotiate a 5-cent-per-minute rate to the United Kingdom when the firm makes only a small number of calls there each month?

    Looking for the Quick Fix
    Organizations have many agendas and priorities. Sometimes, telecom decisions are not made for the long run because there are more pressing issues. Like the Russians in World War II who, in desperation, sometimes sent unpainted tanks to the front in winter, business managers have to survive the present and not worry about the rust of the future. Accordingly, there may be times when a quick fix is necessary. Save some money now and go after the deeper savings later.

    Following are some considerations and approaches for telecom short-term relief:

  • Use contingency-based auditing firms. Relying on splitting the proceeds of finding errors and overbillings, contingency firms become speedy and efficient. Their goal is to send in highly trained, "drill-down" staff; find the gold nuggets; and move on. The downside to this approach is that changes in processes that would prevent the errors from occurring in the first place are sometimes not addressed. In addition, this style of telecom auditing emphasizes reviews of bills, agreements, etc., rather than technology alternatives. The question "Was there an erroneous bill for a T1 after office X closed?" might be asked. The question "Should frame over DSL be used in place of a T1?" will likely not be asked.

  • Renegotiate the contract for immediate relief. Many carriers, anxious to lock in a customer for several years, will lower unit costs in return for longer contracts.

  • Throw telecom "over the fence" to an outsource firm. In fairness, this may be a perfectly acceptable long-term solution as well. However, if the deal is done quickly and without adequate knowledge on the part of both parties, it might not be optimal for the long term. But certainly if telecom is "out of control" and expense management has not been a priority, outsourcing can likely assuage the financial worries of management (at least for telecom).

    It is important to recognize that the above comments are generalizations. For example, Houston-based Teligistics performs both contingency work and some process work, such as long-term "pre-audits" of bills. In other words, for a monthly fee, Teligistics will take the client's bill from the carrier, run it through an automated error detection system, and then send it to the client for payment (or the bill may be paid on behalf of the client). A sample variance report provided to the client is shown in Exhibit 1.

    Exhibit 1: Automated Variance Analysis: Billed Rates versus Contracted Rates

    Special Needs and Groups within the Organization
    Like Orwell's pigs, some groups are clearly more equal than others in terms of their telecom needs. When developing a comprehensive vision of telecommunications — how costs are to be minimized while maintaining service levels — all special groups need to be considered. The classic example is the call center. With hundreds or even thousands of agents, call centers (also called contact centers) are massive bandwidth and service users. Uptime is essential and in some cases, such as Dell Computer Corporation, telecommunications provides the sole "face" of the company to the end customer. If the phone lines and Internet cables are down, how can computers be ordered?

    Tailoring of requirements helps in negotiations and architectural design. If electricity traders make 50 percent of their profits in just 5 percent of the available trading day, the phone lines really need to be up 99.999 percent of the time. Hence, additional circuits, rerouting features, and other contingency services need to be included in any negotiations with the local or long-distance carrier. If the contract negotiator fails to appreciate specialty group requirements, long-term telecom costs could be inadvertently increased.

    Some other considerations that affect the cost management vision include:

  • Is telecom decision making centralized or decentralized? The preference for centralized-decentralized operations swings along its arc every decade or so. However, for telecommunications cost management, centralization has always been best. Carriers reward volumes and a balkanized approach to telecom always means higher cost. "Boudreau" in Beau Bridge, Louisiana, may get a good Frame Relay price from his brother-in-law; it may, in fact, be better than the corporate office in Houston was able negotiate with the carrier of choice. But considering the sum of all telecom costs, the corporate agreement is most likely less expensive.

  • Is change constant? If so, long-term contracts are even more risky.

  • Do the voice and data people talk with each other? IT, data communications, and voice communications should be integrated. Otherwise, sub-optimization will result.

    Incidental Revenue

    The best way to reduce telecom costs is to find ways to make them go below zero — in other words, collect revenue from telecom-related functions. For example, one Midwestern department store chain operates a 900 number service that charges firms that call to verify prior employee work history. Telephone services for students have long been a revenue source for universities. Businesses have become increasingly clever in using telecommunications for profit, or at least offloading some of the costs to customers.
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