Revenue Assurance vs. Maximization

Ashwin Menon sent me this very interesting question recently, so with his permission I wanted to share it with all of you.

“I have followed your blog since January 2007, and I find that you have touched on a lot of issues/concerns/concepts in the field of revenue assurance. One concept in particular fascinates me – The differentiator, in terms of Revenue Assurance, in employing a Revenue Assurance methodology and a Revenue Maximisation methodology. I find the lines to be blurred and I would be interested to know your interpretation.

This question arises because in the TM Forum (of which I am a member) Revenue Assurance Maturity Model, I see (or I imagine I do) that at rank 5, the telco is ideal and moves beyond the traditional viewpoint of RA. For me the logical extension would be Revenue Maximisation. Or is it that Revenue Assurance and Revenue Maximisation work in parallel?

Thanks and Regards,

Ashwin Menon”

I must admit, it never occurred to me to discuss the relationship between revenue assurance and revenue maximization before. The question is valid, so I will try to give an accurate answer ;)

The TMF’s definition of revenue assurance is right, if you ask me (but then I would say that, given I was in the room when the definition was agreed.) The TMF’s technical overview of revenue assurance (document reference TR131), released way back at the start of 2005, defines revenue assurance as follows:

“Data quality and process improvement methods that improve profits, revenues and cash flows without influencing demand.”

It caused a lot of discussion at the time, but what I particularly like about the definition is that it focuses on what revenue assurance people say they do when then talk about the specifics of what they do, and not on what revenue assurance people say they do when you ask them to define what they do. In other words, it focuses on the methods of revenue assurance, which are fairly consistent, and the kinds of goals that are satisfied, which are also consistent. In contrast, the specific goals set for revenue assurance do vary from telco to telco, so cannot be generalized. I can see why people want to define revenue assurance in terms of things like completeness and accuracy of revenues (but let us not go over that debate again!) but the problem is that not everybody agrees on those being the goals, or if they agree, they do not do always really aim to meet those goals in practice. For example, completeness of revenues is a very laudable goal, but what exec is going to agree to improve the completeness of revenues from 99.99% to 100% if the final fixes cost more than the 0.01% of revenue gained? Also, some execs are more interested in ensuring the accounts are correctly stated, others that the bills are right, and others that they get the cash from the customers. The exact measure of success is hence bound to vary, not just from company to company but even within a single company from time to time. This is why I have never been keen on definitions that picked a specific objective as the basis of revenue assurance.

The other thing I like about the TMF’s definition, is that it neatly sidestepped one problem raised by some other proposed definitions of revenue assurance. Some definitions very simply and neatly stated that the goal of revenue assurance is to maximize revenues. That is very neat, but very wrong, if you ask me. You maximize revenues by selling and selling, until you can sell no more, but the average revenue assurance practitioner is certainly not a salesperson. What most revenue assurance practitioners have in common is that they are not trying to sell more. They are trying to improve revenues, cashflows or whatever is the chosen measure of success without increasing sales. In other words, they improve results without seeking to influence demand or consumption of the telco’s products. How they do that? Well, this is where the uncontroversial core of revenue assurance practice comes in, by trying to identify services rendered but not billed, or billed but undercharged, or charged but without the cash being collected, and so forth.

What is revenue maximization, in contrast? Well, if you type the words into the internet, you get a very consistent answer back. That answer also accords with my professional training. It is about setting prices to make the most money. Revenue maximization is a basic concept in economics. Businesses may be profit maximizing or revenue maximizing in nature. To get to the maximum, the business tries to work out what products to offer and how much to sell them for. In particular, people draw a lot of graphs, do some equations, collate a lot of data to gauge price elasticity in the market (in short, how much demand for the product goes up or down as the price goes down or up) and where a product is placed relative to competitors. I have no desire to reinvent the definition of revenue maximization for telcos, so I would be happy to leave it at that. In which case, the relationship between revenue assurance and revenue maximization is very clear. One has nothing to do with pricing and demand, the other has everything to do with pricing and demand. What they have in common is data, which in particular may be data about how current customers behave, what they purchase, how much they pay. Revenue assurance is looking for flaws or gaps in the data. Revenue maximization trusts the data, but uses it to determine how to influence customer behavior.

Does this mean that revenue maximization is the natural next step for revenue assurance, once revenue assurance is completely mature? Well, yes and no. Starting with no, even modest telcos already employ people who do some kind of job of looking at data and competitors and setting prices. They may just follow the price leaders in the market, but that is still a genuine strategy for revenue maximization. It may not be a very sophisticated strategy, but the point is that this kind of work already predates revenue assurance in most telcos, so it would be misleading to suggest that revenue maximization is a job that everybody has ignored and is just waiting to be done when revenue assurance people finally have the spare time to get around to it. Somebody is already doing it, and chances are the senior execs are very aware of what they are doing. in any liberalized telecoms market, the execs are probably far more interested in pricing strategy than they are in revenue assurance. On the other hand, the people responsible for revenue maximization may not be very sophisticated at understanding or using data. They may not have all the relevant data. In contrast, revenue assurance people may, especially when they have stopped all the leaks, have very good and interesting data, and the skills to use it. They may spot opportunities or pitfalls that the pricing and marketing people miss. For example, they may notice cases where the sales price for a product is less than the cost of supplying it. They may identify network blackspots where many customers find calls are dropped or times of day when congestion stops people making calls or causes systems to be overrun and calls to be given for free. They may identify segments of customers who demand a lot of customer service time or a lot of credits and who churn after obtaining handset subsidies that are greater than the value of the calls they make. They may identify the signs of arbitrage and of seemingly honest customers who always pay their bills but who are actually illegally connecting VoIP services to the network to avoid termination fees. In summary, the data obtained by revenue assurance, when combined with the skills to analyze that data, may yield many benefits for the company in terms of selling more to desirable customers and selling less to undesirable customers.

Revenue assurance typically deals with issues that have fallen through the cracks – if nobody else deals with the problem, then revenue assurance is there to sort it out. That mentality is appropriate for the examples listed in the previous paragraph. All of those problems may have fallen through the cracks. It is in the nature of any organization to be confronted by problems that have not been anticipated and where there is no clear responsibility for who deals with them. That does not mean these specific problems must be allocated to the nominal revenue assurance function. It also does not mean that revenue assurance people have an automatic mandate to interfere in these cases either. There are other skills than the skills that revenue assurance practitioners have. For example, I have often heard revenue assurance people talk about the impact of changing price and the effect this will have on customer behavior, most usually with the point of view of exploiting inelastic behavior i.e. the telco can increase the price but the customer will buy as much, hence leading to higher revenues. Whilst it is tempting to make pronouncements like that, revenue assurance people may simply lack the data to justify their opinions on matters like these. Whilst it is fair to assume that a few pence or cents here and there will not be noticed by customers, there is a point where any customer may look around for a new supplier when they notice their bills are getting higher although their use is just the same. Many judgment calls need to go back to the pricing and marketing people. They can obtain alternate sources of data from market research that typically fall outside of the skillset of the revenue assurance practitioner. Revenue assurance can help a lot with using the telco’s data, but should not be handed freedom to dictate wider business policy as a consequence. I do not think anyone is openly suggesting that is what they mean by the use of the phrase ‘revenue maximization’ when spoken in circles that include revenue assurance people, but this takes us full circle back to definition of revenue maximization and even those people who thought revenue assurance was the same as maximizing revenues.

In the end, dedicated revenue assurance departments have a job to do. That job uses certain specific skills and tools. There is a role to played. It is possible to step beyond the goals of revenue assurance and to use those skills and tools to assist in the realization of other goals that also help the business and fit with its priorities. This may naturally take place as a skilled revenue assurance team reaches maturity and finds it has experienced people who are not as well utilized or as fully challenged as they might be. It can also take place sooner. Just because revenue assurance is immature does not mean it is always a bad idea to redirect resources to quick wins that fall outside of the remit of revenue assurance as defined. Sometimes the value of those wins will make it worth taking a detour from the revenue assurance highroad. However, whilst revenue assurance has a clear role that will necessitate some dedicated staff, revenue maximization does not. It is too nebulous to become a new full-time source of employment for people who have reached the end of the revenue assurance evolution. At best, revenue maximization is the responsibility of many people within a business, not least the pricing and marketing functions. There may be a need for some individuals to move from revenue assurance to roles which support the revenue maximization goal, but those cases will depend on the history, challenges, opportunities and current resources in the specific businesses. It will not be a universal norm that revenue assurance turns into revenue maximization. Instead, revenue assurance needs to focus on what it does best, as well as the reasons why it is needed. If the skills with data and analysis are there, they can be put to use to assist in areas that are beyond the normal scope of revenue assurance. Being helpful, though, is a long way short of taking ongoing responsibility. Whilst it is glorious to see revenue practitioners be ambitious and succeed, it would be unwise to assert that all should aspire to take on the broad responsibility addressed in the far-reaching phrase ‘revenue maximization’.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.