The Difference Between Money and Value

Do you know what is the difference between money and value?

Do you, really? Can you define it? Can you calculate it? Can you standardize it?

It is not a stupid question. People find it hard to talk about value without describing it in monetary terms. But value is not money.

Let me use an example. Suppose I was thinking about selling my car. Then one way of valuing my car is to ask a dealer how much he would pay for it. Simple. Then that amount of money is the value of my car… but hold on. That is not the value of my car. It is a value for my car. Suppose I use the car to go to work, and if I did not have a car, I would need to use public transport. Then another value for my car is calculated by saying how much I would spend on public transport in order to go to work, if I did not have a car. Of course, I could sell my car and buy another car. I know, because I am not a car dealer, that if I sold a car, and bought an identical car, I would pay more for the identical car than I received for the car I sold (unless I am a very good salesman or I spot a rare opportunity due to inefficient markets or the ignorance or apathy of customers). So if I measure the value of my car based on how much it costs to replace it, I will likely calculate a value that is higher than the price I get when selling the car.

Those who closely follow developments in RA could hardly fail to notice Gadi Solotorevsky’s new top priority. cVidya’s CTO and the leader of the TM Forum RA team wants to standardize the calculation of the value of revenue assurance. I say it cannot be done, at least not in the way that he thinks it can be done. Maybe, if I sold my car, Gadi could tell me how much money I could make from selling it. Or maybe Gadi could tell me the cost of replacing it. Or maybe Gadi could show me numbers relating to how much I would spend on alternatives. But Gadi cannot tell me the value. He cannot tell me the value because I judge the value based on how I use the car. Perhaps I use the car on weekends to visit a sick relative, and would be unable to reach them using public transport – then the importance of visiting my relative overrides any attempt to calculate the car’s value by reference to a public transport alternative. Then my sick relative moves into my house – now the value has changed because I use the car less. Perhaps I intend to leave the country and move far away – the car’s sales value is all that matters to me, because I cannot keep on using it. Use determines the value of a car, and the same is true for revenue assurance.

In the early days of revenue assurance, there were many people seeking to ‘define’ revenue assurance. They would generally come up with a standard format for their definition: “the purpose of revenue assurance is to [insert purpose here]”. In a way, they were right. They were telling us the purpose of revenue assurance in their business. But by defining revenue assurance, they were also trying to tell us what should be the purpose of revenue assurance in every other business. That is where they fell down. They could not judge or decide the goals and priorities of other businesses, so could not dictate the purpose of revenue assurance, nor come up with a definition. By focusing on purpose, the result was very many definitions from very many people, and all of them different.

We are fortunate that the TM Forum definition of revenue assurance side-stepped this problem. It does not define revenue assurance according to its purpose, but according to its methods. You and I can use the same methods, whilst pursuing a different goal, just as you might drive a car to work whilst I drive to visit a sick relative. A car is a car is a car, whatever purpose it is used for. But the value of the car is still intimately linked to the purpose of its user. Because of the way the TMF defined RA, we can also say that RA is RA is RA… but the goals of RA in one business can be very different to the goals of RA in another.

In the TM Forum definition, the purpose of revenue assurance is left open. It is to “improve profits, revenues and cash flows”. That is vague, and deliberately so. If profit is your telco’s top goal, then it should be the top goal of revenue assurance. If revenues matter more, RA should focus on revenues. Furthermore, the TMF’s definition is short for convenience. It should be read like this: “improve profits, revenues, cash flows…” because the list is not meant to be exhaustive. The list is meant to read: “take the relevant financial goals of your business, and insert them here”.

Take Gadi Solotorevsky’s campaign to standardize the value of revenue assurance, and contrast it to the TMF definition of RA. The two are in conflict. Gadi cannot dictate the value of RA, any more than he could dictate the purpose. Value comes from purpose.

Gadi’s campaigning goes on remorselessly, both in public and behind the scenes. Let me be frank. The argument against is utterly straightforward to someone with even a basic insight into economics. Being a team leader in the TMF does not automatically qualify somebody to claim unlimited expertise, any more than I would tell cVidya’s CTO how to develop software… though I wish he would sometimes focus his campaigning to areas which actually link to his skills and experience. People like Guera Romo rightly point out that RA demands a hybrid of skills. It is no insult to point out that an individual may have strengths and weaknesses. That Gadi is determined to use his position to push the agenda is troubling, not least because there is no mechanism to replace him as leader of the TMF RA team… and nobody else wants the job. Remember, Gadi was not chosen to be team leader. He was the only person who volunteered to do it. In the early days, he acted like a chairman, unwilling to express his own opinion and recognizing multiple views. Hence why the TMF’s definition of RA is the way it is. Now, he seems intent overriding opposition to any objective he sets. This makes him blind to his own limitations.

Strong words, I know, but look at the evidence from Gadi’s latest blog. Once again, he veered away from telecoms to try to make some ill-considered argument by analogy. We can all argue by analogy (as with my argument about the value of a car). But an analogy may be good, or it may be poor. To understand an argument is to understand why an analogy is good, or poor. In his latest blog, Gadi accuses the US Mint of ‘losing’ money. I kid you not…

You can get Frequent Flyer Miles for free by buying actual 1 dollar coins at their nominal value. The US Mint is selling $1 Coins at cost and offering free shipping. You can buy the coins using a credit card that accumulates Frequent Flyer Miles. Basically, you can buy 500 coins worth a total of 500 USD, pay 500 USD using your credit card, and accumulate miles.

Reasonably accurate. He fails to mention that you only get free shipping on orders of 500 dollars or more.

The Mint offers these conditions to promote the coins’ circulation.


However, the Mint is obviously losing money.

Painfully and obviously wrong. The US Mint is not losing money at all. Far from it. For a start, the US Mint is not a conventional business. It exists “to meet the needs of the United States”. That is its purpose. So any gain or loss should be measured against that goal. In other words, is the coin circulation program of net benefit or net cost to the United States? The answer is straightforward: it is of net benefit. The purpose of the program is to put 1-dollar coins into circulation in order to replace 1-dollar bills as rapidly as possible. As the coins will have a much longer life, they will save the US Mint, and American taxpayers, a lot of money in the long run. Or, we could just look at the short run. If we do that, then no country should ever use coins, because coins cost more to make. Is the decision to make coins an example of the US Mint ‘losing’ money because of unnecessarily high costs? Of course not.

I can only raise an eyebrow at Solotorevsky’s inability to see things in context. He sees the micro, and not the macro, and then argues the macro must be like the micro. It would be better to see the big picture, and not just infer it from details. Gadi’s example of ‘losing money’ is drawn from the United States of America. Last month the US ended a 600 billion-dollar QE2 money-creation program, which was used to suppress interest rates in the hopes of stimulating economic growth. If we want a (somewhat unreliable) analogy, QE2 was like minting 600 billion 1-dollar coins, without asking anyone to pay a single cent for any of them. Clearly the US economy has bigger issues than how to allocate the practical costs of putting new coins into circulation. The US has no problems with losing money; it is gaining money. A coin is money. A larger number on a Treasury computer screen can also translate into money. But creating money is not the same as creating value, which is why QE2 caused the value of the dollar to fall. It is this fundamental distinction between economic value and nominal monetary value that Solotorevsky does not comprehend. Circulating coins as a replacement for bills creates value, by reducing long-run costs, yet Gadi completely misses this vital point.

However, even though the Mint runs this program with good intentions, it exposes itself to traffic inflation.

Luckily, the people running the US Mint take more care over their coin distribution than Gadi Solotorevsky takes when checking his facts. The absurdly-named risk of ‘traffic inflation’ (by which he means the buying of enormous numbers of coins, just to get air miles on credit cards) has been thought of and minimized. A 30-second review of the US Mint’s website reveals that:

There is a 4-box $1 coin limit for every 10-day period on any and all $1 coin orders. Beyond that your credit card will not be authorized. If you need quantities greater than this, please send an e-mail before placing your order to [email protected] explaining why your order should be exempted from the limit.

In other words, the US Mint implemented a simple control to limit potential abuse. Well done to the people at the US Mint, who obviously understand risk and control coverage pretty darn well, even without reading any TMF standards on the topic.

Of course, you have to love the way that some people might think of this as a ‘scam’. First, the scammer would have to haul lots and lots of heavy coins down to the bank. Then they would get charged by the bank when the coins are paid in to their account. And if they don’t receive the coins and pay them into the bank quickly enough, they will suffer the interest charges on their credit card. If Gadi wants to discuss scams, he should talk about the scams that beset the telecoms industry – they are far more profitable.

I am all for measurement of benefits and risks, by people who are competent to do the job. That competence involves recognizing that benefits and risks are not set according to a universal standard, but are relative to the subject. One telco’s risk is another telco’s opportunity. The benefits you get from driving your car may be very different to the benefits I get from driving my car. An RA department should value itself based on how it supports the goals of its business, not goals set by a standard-setter, who can only talk about business goals in abstract. And even though an RA department may spend a lot of time counting the monetary value of transactions, not all value equates to the monetary value of transactions. That is why it can be good business to write-off a valid charge on a customer’s bill, and bad business to let customers suffer bill shock. The real value of our businesses comes from them being businesses, and is not calculated as the sum of transactions they process. Revenue assurance practitioners sometimes need to step back from the detail in the data, and remind themselves they are part of a bigger team: a business, which should have common purpose.

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.