Follow the Money – Part 1: Revenue Assurance and Sales Channel Assurance

datePosted on 01:51, March 18th, 2010 by admin

One of the most exciting and challenging things about the revenue assurance world as we evolve as professionals, is how the scope of our responsibilities continues to expand. Few revenue assurance professionals do not understand the process of tracking and assuring the integrity of a CDR. But many of us are finding that following CDRs is a small part of the job.

Case in point is assuring sales channels. Not long ago people would tell you revenue assurance had no business poking around in the sales channel area. Indeed, Sales Managers did not want anyone else looking “under the covers” of their operations, and for many organizations accounting and internal audit was assumed to be “in control” of those areas.

Unfortunately, what happened to a lot of telcos was…well, what always happens. New sales channels sprang up overnight. Instead of managing one internal sales force, the telco now must manage dozens of teams along with partners, brokers, agents, pseudo-employees and mega channel partnerships. Creative, cost effective and incredibly complicated sales tracking and compensation plans were suddenly created.

In the wake of all of this change came leakage and fraud. In no time, telcos inadvertently invented dozens of ways to lose revenue, use sales tracking to give false information, give sales credit where it wasn’t earned and most critically, to fail to accurately and honestly report revenues.

When this happened, it wasn’t long before the CFOs came to realize the skills and capabilities of the revenue assurance team were the best available to address these issues. And so the “morphing” of the definition of revenue assurance began.

Early RA Efforts in Sales Channel Assurance

The first documented cases of allocating the responsibility for “leakage” in sales channels can be found in the South East Asian carriers. In these markets, the rapid expansion of the role of sales channels to fuel prepaid became the impetus for change. Over the past decade, the trend has grown to where the majority of telcos now include “sales channel assurance” as at least a part of the scope of the revenue assurance team.

Given that sales channel assurance has worked its way into the charter of many revenue assurance groups, what are the details behind it? Luckily, the GRAPA standards spell out the principles and approaches key to sales channel assurance and the GRAPA certification training classes review the standard controls and assurance points in detail. For those who have not had the chance to review those standards, or take the training, we will provide an overview here.

Assurance of Sales Channels – Domain Fit

The first issue for the revenue assurance professional faced with the job of sales channel assurance is to identify which domain it falls under. This is critical, because only by mapping a situation to our standards and body of knowledge can the revenue assurance professional gain any leverage or support for the areas they cover.

When you determine which domains a problem touches, you gain access to the standard controls, approaches, benchmarks and knowledge other revenue assurance professionals have gathered over time. Under the GRAPA standards, sales channel assurance can be positioned in several ways.

First – Channel Assurance is one of the four major domains required to assure the prepaid line of business. It is impossible to assure prepaid billing systems and the entire Prepaid LOB without assuring the company that the sales channels are tight, leak proof and feeding the voucher management system with integrity.

Second – Sales channel assurance fits under the subject of CRM assurance and assuring the different CRM value chains:

a) Sales

b) Customer Service

c) Marketing

Either way, sales channel assurance is critical, and definitely “in scope” according to the standards. When is the assurance of channels part of the charter of the revenue assurance group?  As for all revenue assurance domains, the domain comes “in scope” when:

a)      Management identifies it as a domain of concern.

b)      The operational team invites the revenue assurance team to help.

c)      The losses or risk of loss become pronounced.

When the domain is added to the revenue assurance group’s charter the revenue assurance manager must:

a)      Perform an initial forensic analysis of the domain to rationalize and quantify the extent and nature of the revenue risk and loss.

b)      Prepare a set of recommendations and relate them to specific quantified risk areas.

c)      Review the recommendations with top management and the operational teams concerned.

d)      Implement actions based on management decisions.

Channel Assurance – Objectives

What are we supposed to accomplish when we assure this area? After all, there are no CDRs in a sales channel. What leakage are we trying to address? Experience has shown that when a CFO wants the revenue assurance team to “assure” a sales area, they have some specific problems in mind.

The nature of revenue leakage and revenue loss protection when sales channels are involved has taken a couple of major forms:

  1. Inventory and “virtual inventory” related losses – When top-ups and sim cards are not adequately accounted for (revenue producing assets are mismanaged, resulting in the false accounting of revenues, or the “giving away” of services) There are three operational sub-domains to consider in these cases:
    1. Outbound Asset Management Failure – Faults in the process of accounting for the creation and delivery of revenue generating assets (virtual and physical) to the point of sale.
    2. Boundary/Exchange Failure – Fraud or error in execution of exchanges of value with sales persons – when sales channels (internal and external) accept responsibility for revenue producing assets, and they are not accounted for properly.
    3. Inbound – Accounting Failure – Failure to get funds collected properly allocated to the Account Management System and the bank account.
  2. Post sales accounting – Inaccurate sales reporting/commission pay out – When the payment of commissions or the allocation of sales credit becomes part of the overall profitability of a service area, then the accuracy of the sales tracking and commission payment domains fall under the charter of revenue assurance as well.

How is this Revenue Assurance?

So now we get to the heart of the controversy for some carriers and CFO’s. How can we justify the inclusion of the assurance of these areas as part of the mission of revenue assurance? After all, these are not direct revenue issues are they? At this point, we are forced to go back to some basic definition of revenue. Under the “Old School” Revenue Assurance definitions the term revenue is used to refer to the monies received for the delivery of a service. Revenue is the money we receive from the customer.

In the good old days of telecoms, when all revenues were postpaid, we provided a service to the customer, we collected CDRs that we used to make a bill, and the customer paid us. In this revenue management chain scenario, revenue assurance was ensuring the CDRs are collected, processed, billed and monies collected from the customer.

The Prepaid “Spin” On The Definition Of Revenue

In the modern telecommunications world, revenue is not that simple to understand. In a large number of carriers, the primary form of business is not postpaid but prepaid. In the prepaid world, monies are collected far in advance of service delivery.

I get client money and they receive a “token in exchange” (i.e.: a top-up card), that is used to top up their online account. When they use the service, an amount is deducted from the account management system. In the prepaid world, in the “purist” sense, revenue assurance is a very trivial process, making sure the account management system decrements the balance correctly. There is no long revenue stream or CDRs, just a brief, instantaneous online transaction. That should mean the revenue assurance job is small and specific. However, it is not that simple.

In the postpaid world, losing money because you didn’t collect from the customer reduces your company’s revenues. Errors in collections come “out” of the revenues counted. Because of that, most people consider the job of revenue assurance to be the assurance of the real revenues, not the legalistic definition of revenue under accounting principles. Whether I am worrying about the “watering down” of my full revenue realized from a failure to collect from a postpaid customer, or a breakdown in the collection of prepaid monies, it amounts to the same thing.

The question is not whether this is a problem, nor is the question whether this has a negative impact on revenues. The question is whether the CFO should include that within the scope of revenue assurance, and is a decision they need to make based upon need, skills and the depth and breadth of the problem.

Once that decision is made, it means revenue assurance must concern itself with the integrity of the process of getting the money from the customer and getting it into the Account Management Systems intact as well as making sure  the “moment of truth” that occurs at the point of revenue recognition is accurate.

And so the “channel assurance” domain of Prepaid Assurance is born.

Objectives of Channel Assurance

The mission of revenue assurance when it comes to channels is fundamentally no different than it is anywhere else. The GRAPA standards specify the particulars. Our job is to:

a)      Identify any and all “risks to the loss of revenues” that the domain represents to the company.

b)      Quantify that risk, both in terms of the amount of money at risk and the probability of that loss occurring

c)      Recommend remedies to management (recommend changes to procedures, or the implementation of controls)

d)      Implement the recommendations that management chooses based upon their appetite for risk.

That’s enough I think for this installment. We will continue to explore these issues by taking a closer look at a couple of the sub-domains under channel assurance, namely, Prepaid Time Assurance and Sales and Commissions Assurance.

Until then, this is Rob Mattison saying… be safe.

One Response to “Follow the Money – Part 1: Revenue Assurance and Sales Channel Assurance”

  1. […] for Commissions and Sales Compensation Plans Posted on 01:27, April 1st, 2010 by admin In a previous article, I discussed the issue of revenue assurance and our involvement in the assurance of sales channels. […]

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