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August 2011

Is Your Company Penny-Smart and Dollar-Foolish in Auditor Productivity?

Is Your Company Penny-Smart and Dollar-Foolish in Auditor Productivity?

When my son and I were out driving together, we drove up alongside a fire engine.  On the fire engine was a sign in small-letters saying, “Keep back 500 feet.“ At which point my son asked, “How are you supposed to keep back 500 feet when you can’t read the warning from 50 feet?”

I found his comment amusing.  It made me realize how we often overlook what is right in front of us and have grown to ignore what would appear to be obvious.

So how about your invoice validation process?  Are you satisfied doing a “500 foot“ scan of your invoices?  Do your auditors have the time and processes in place to do an up-close analysis of your bills like a fireman inspects a building for potential hazards?

Over the years, we’ve spoken to dozens of small to midsized CSPs who have yet to invest in an automated cost assurance solution.  And the reason these carriers decide to not buy usually boils down to these two:

  “We don’t believe investing in invoice validation will yield enough of a return.“

  “Our current manual systems and processes seem adequate since our audits are only finding nickels and dimes.“

So let’s look at these issues in greater depth because I sincerely believe that many of those firms are leaving money on the table.

Cost Validation: How Much of a Return Can You Expect?

Now let’s tackle the first issue: getting a return on your automation investment.

Exactly how much revenue will automated invoice validation deliver for you?  Well, I’ve seen figures on the Web suggesting that monthly savings are in the range of 10 to 30 percent of your invoices’ charges.

These numbers are concerning.  Think about it: If companies were billing at a 20 percent error rate every month, they would need to constantly restate their earnings every month and report that fact to shareholders.  Exposing such gross errors in accounting would be highly embarrassing to say the least.

Yes, you can get a large one-time revenue recovery immediately after you put new automation in place, especially if you‘ve done little to no invoice review in the recent past.  Likewise, if you’ve been doing ad hoc reviews, 5 to 10 percent recoverable cost is possible.  But over the long haul, we’re seeing an average of between 1.5 and 3 percent monthly return for those CSPs who operate mature cost assurance programs.

Note that this value is a “WIN“ range — the amount actually recovered.  You will very likely dispute more than that and you will talk with your vendors about how the agreed-upon cost schedule is being applied.

Most billers update and correct their billing whenever a client notifies them of an error.  I said “most.“ There are a select few billers who knowingly bill incorrectly and are “unable” to verify their bill for the client, but we’ll leave that subject for another blog.

I realize that validating your network costs is not the most glamorous way of generating profit margin, but the 1.5 to 3 percent savings is significant money you can apply immediately to your bottom line.  By contrast, investments in networks and services require a significantly higher investment and take longer to earn a payback.

Why Manual Invoice Validation Could Be Costing You Money

If your auditors are finding only “nickels and dimes,“ it’s very possible that you’re unwittingly contributing to the problem by failing to invest in productivity-enhancing tools.

Auditing can be a very tedious process.  Traditionally it involves considerable data compiling in spreadsheets and retrieving electronic and paper files.  There are lots of issues here, for example:

  • Often the invoice is too big to fully review, so only summary values are captured and examined.
  • Many invoices are too hard to read and — over time — this “stare and compare“ monotony leads to more errors and missed values.
  • Moves, adds or changes are missed as the user rushes to complete the review.

Back in the 1950s, managers drove greater work productivity through “time and motion studies.“ Workers on a production line were studied by people with stopwatches and clipboards to discover techniques that could shave a few seconds here and there from human tasks.

Well, production-line workers have it relatively easy because the parts and tools they need are readily accessible.  Not so with auditors who must assemble and transcribe data from far-flung data tables and paper files into a spreadsheet or written notebook.  Considerable time is also wasted searching for files and performing fragmented, stop-and-go work while waiting for data to arrive from colleagues or vendors.  Once everything is in front of them, only then can auditors get to work on the actual review.

One last thing to consider here is motivation.  Auditors are like everybody else.  They have iPads, Blackberrys and PCs of their own.  So there’s an expectation that an employer will equip them with modern software and if it’s not supplied, morale suffers.

Auditors are performing a critical task that requires smarts, concentration, and the utmost attention to detail.  If you can take some of the menial work away by investing in a good tool, chances are your auditors will produce better work for you.

The Biggest Benefit: Regular, Deep-Dive Invoice Review

We’ve talked about how the productivity benefits of wrapping software around your invoice review process.  But what is “productivity“ really?  Add it all up and I think it translates to one very important mission: enabling your auditors to spend more time auditing instead of squandering their time on all the preparation work that surrounds the process.

And the proof is in the pudding: With a monthly, automation-driven invoice validation program, our clients are finding significant savings.  And where is most of this profit margin found?  It’s in many areas actually, but mainly the following four:

  • Inventory — Is it my line or not?
  • Usage — Are the usage charges accurately calculated?
  • Services — I know what lines I ordered, so are the services on that line correct?
  • Rates — Am I being billed the correct rate?

Finally, with a solid cost-assurance program in place that captures and cleans up billing errors, you know the cost basis of your business is accurate.  And that allows you to take the next step: populating that verified cost data to a data warehouse where you can analyze the true profitability of your customers and services.

This article first appeared in Billing and OSS World.

Copyright 2011 Black Swan Telecom Journal

 

About the Expert

Peter Yelle

Peter Yelle

Peter Yelle is a partner at Contact Telecom LLC .  With more than 20 years of professional engineering and product management experience in the telecom and wireless industries, he has been instrumental in bringing effective telecom solutions to market.  Yelle holds a Bachelor of Science in Electrical Engineering from Northeastern University in Boston.

Related Stories

  • Is Your Company Penny-Smart and Dollar-Foolish in Auditor Productivity? by Peter Yelle — Operators who fail to automate their invoice reconciliation process could be seriously undermining the morale and efficiency of their most valuable auditors.  This article explains the many subtle ways that manual auditing process can cost operators money.  Also presented is an analysis of the typical returns achieved by CSPs with mature cost assurance programs.
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