First defined by the TM Forum, revenue assurance (RA) is a practice that employs data quality and process improvement methods that improve profits, revenues, and cash flows without influencing demand. And as revenue assurance and fraud management specialist Joseph Nderitu writes, CFOs who integrate RA into their financial strategies will be better positioned to protect revenues.
For many businesses, revenue leakage is a silent but ever-present threat. It is almost an accepted cost of business - but it does not have to be. Frontline functions in areas such as operations and customer service have a role to play in revenue assurance. They should own and drive first-level controls. However, often these functions are overwhelmed by their day-to-day work, and things fall through the cracks, leading to revenue leakage.
Examples of revenue leakage in telecoms include misconfigured product prices/tariffs, unclaimed discounts, and use of invalid data in reporting, hence leading to underreporting. As businesses deploy complex systems which have multiple interfaces and failure points, the exchange of data across these platforms sometimes generates errors and these errors can find their way into financial data. None of these issues, by themselves, will lead to the business failing to meet revenue targets in the short term. However, the aggregation of these errors, over time, affects business performance.
The realisation of the impact of these losses has driven adoption of RA in other sectors such as banking, retail, and utilities.
RA comes in as a second-line defence line that works with the primary process owners to test, improve, and refine first-line controls on a continuous basis. It identifies threats to revenue and crafts measures to prevent and detect revenue losses. Much of the work in RA is done by comparing revenue-related data from independent sources, identifying anomalies in revenue trends and performing root-cause analysis in order to resolve problems.
RA is not just a finance function. Collaboration between finance, IT, sales, and operations is critical. Historically, RA came about because departments in large telecom companies were working in “silos” and this was leading to leakage. It was clearly necessary to break down the silos, especially as competition increased and the need for efficiency became even greater. Using data analytics, it is possible for RA to show operations that still suffer the silo mindset. Such areas are ripe for process reviews, system changes and cross-departmental collaboration. The application of the corrective actions is driven by RA, under the sponsorship of the CFO and the support of exco.
CFOs can and should champion a culture where RA is a shared responsibility, ensuring that billing, collections, and reconciliation processes are aligned across departments. The alignment cannot be subjective. It needs to be measurable so that it can be kept within set tolerances. To do so, RA needs to use well-defined key performance indicators (KPIs).
KPIs ensure continuous monitoring and improvement of RA practices by using data to track revenue lost, revenue recovered, and revenue loss prevented per period. This gives metrics and dashboards that help executives to identify specific areas that need to be targeted.
Implementing RA is not without challenges. Organisational politics and resistance to cross-departmental collaboration can render the programme dead on arrival. Understandably, revenue leakage is not a comfortable topic and accountability is not easily driven. Secondly, for large businesses, there will invariably be a need to implement RA systems and employ skilled RA professionals. Justifying the cost of such investments in an atmosphere of shrinking margins can be a tough task.
Perhaps the biggest challenge is striking a balance. RA needs to be implemented in a cost-effective manner. The investment in the systems and the people should generate a fair return in terms of revenue loss identification and revenue loss prevention. As such, RA is a programme best implemented in phases with very clear criteria for progression. Minimal investments can be made in commencing RA. Additional funding should be provided as RA proves value.
Even with the implementation challenges highlighted above, as businesses navigate the challenges of digital transformation, regulatory changes and economic uncertainty, CFOs who integrate RA into their financial strategies will be better positioned to protect revenues. At the very least, they will be in a position to confirm that as new threats arise, they have a ready tool to prevent, detect and address leakage. That tool can be deployed in any environment that has access to data, and skilled people who can interpret the data.
It is noteworthy that in the telecoms sector, which embraced RA quite early on, these tasks nowadays include cost assurance i.e. making sure that the cost side of the P&L is also accurate and unnecessary costs are identified, quantified, and addressed. Consequently, steady evolution and expansion has taken place. Some RA functions have been rebranded and are now referred to as ‘margin assurance’ or ‘business assurance’.
In any case, RA is a good start.
