Telecom Expense and Inventory Management Practices:

Telecom Expense and Inventory Management Practices: Gaining Control and Visibility Michael Bodetti CEO TnT Expense Management 1

Introduction The provisioning and management of telecommunications, network and wireless assets continue to be a challenge for companies. The expenses related to the assets are rarely managed centrally, or consistently, within companies and across departments. Studies have shown that companies of all sizes can benefit from using TEM applications or transferring the management of telecom expenses to TEM service providers with the knowledge and expertise to properly manage the assets and expenses. While many changes have occurred in the Telecommunications Industry, what hasn t changed are the issues and concerns with billing and carrier services. While the carriers networks have advanced technically, their legacy billing systems (some from the 1970 s) have not. These systems cannot handle the complex billing of today s networks and services. As a result, it is usually left up to the customer to point out errors and inaccuracies. With the telecom spend being so high, even the smallest cost per minute (CPM) error can result in significant over billing. This validates the need to have control and visibility to those expenses. Research shows that the Telecom Expense Management (TEM) industry is rapidly growing at a rate of about 30% year over year and is estimated to be a $1.5 billion industry by 2010. The market for global capabilities also continues to increase, Europe more so than Asia and Latin America, although it has not matured nearly as it has in the US. This informational paper discusses the solutions in the TEM market place and shows how some of the leaders in the Financial world are leveraging the technologies and practices of tomorrow to gain better control and visibility to their IT inventory and costs today. Although there are different levels of services including software applications, hosted solutions and full managed solutions, the market is embracing the broader full managed TEM Business Process Owner (BPO) services over the Software as a Service (SaaS) solutions. SaaS simply offers application functionality, loading and hosting of vendor billing data. BPO addresses operational support needs, such as provisioning, help desk, dispute management, bill processing and payment services. The focus of this informational piece will be on BPO services. 2

What exactly is telecommunications expense management (TEM)? Telecom expense management can take many forms and encompass many departments. In essence, it is the act of combining the technical knowledge of various telecommunications services with a finance or accounting background to maintain control over a company s inventory and costs. It includes any measure that seeks to either reduce costs or increase efficiency for telecom services. What is included in the term telecommunications? The term telecommunications encompasses assets and services such as phone lines (local and long distance), data lines, data centers, PBXs as well as voice and data wireless devices. Whether you re on the phone with a customer across the country, using an internal accounting program, sending an email to your manager or attending a web conference with co-workers overseas, you are utilizing your company s telecom infrastructure. And, as you can probably guess, any business or organization could not function without it. What services encompass the TEM Business Process Outsourced solution? The services within TEM BPO are typically broken down into the following: Inventory Management - Through analysis of CSRs (Customer Service Records) and regular uploading of client systems, and other research as needed, a detailed Inventory will be built for continuous billing to inventory reconciliation. More will be said about Inventory Management later on in this write up. Invoice Processing - Invoices (of all media) are arranged with the carriers to be sent to the TEM provider, inputted into the system, audited and submitted for payment via nightly batch files to the client system. The database structure allows for easy display of historic invoices as well as full quality control and operational metrics necessary. Invoice Auditing - All circuits, devices and services are verified for rates, inventory match, taxes, location and charge validity. Rates are compared against current tariffs and contracts. One-time charges (such as installation or service changes) can be significant and are checked for accuracy and against contracts. In addition, fraud and abuse is checked as well as any bill consolidation opportunities. Wireless accounts and plans, in particular, change often and need review. Auditing is done at a very detailed level each time the invoice is processed. Other possible checks include overcharges, missed bonus or promotions, installation credits and volume discounts. Good TEM providers will generally have a laundry list of audit items that are checked during every billing cycle. All of this results in potential credits that are documented and negotiated with the vendors. Claims Tracking - Any disputes are filed directly with each vendor and monies withheld based on the client busness rules. Claims are tracked down to the line level directly to the invoice in question and followed up on with each vendor until resolved. All credits are thoroughly documented and submitted to vendors as part of the ongoing negotiations. Credits are tracked as they are applied back, thus capturing the complete life cycle of the claim. Vendor Management - A relationship is established with all carriers, including escalation points at many levels. The TEM will handle all follow-up with vendors for missing invoices, payment allocation questions, credit issues etc., directly with the carriers. This allows our clients to focus on their core business initiatives. Service Optimization - Recommending changes to the client s existing configuration of services in order to reduce costs. Savings opportunities exist for all areas such as Local, Long Distance, Data and Wireless networks. Reengineering the network itself to carry the same traffic at lower cost can often reduce costs further. Chargeback / Cost Allocation - By assigning a cost center or P/L to every line of inventory that appears on the bills, companies can ensure that all costs are charge backed to the appropriate business units and departments. This service provides accountability for all telecom services. An electronic payment file is then encrypted and sent over usually via an FTP transmission directly into the clients AP system. The TEM then produces a very detailed Chargeback file at month end along with a feed into client systems for reporting purposes. Business Intelligence Reporting - The visibility to inventory and expenses is made available through the reporting tool provided by the TEM provider. Web-based reports are available and designed for each client and available through a secure website and also made available to handheld devices. Reports will be customizable to see detailed reports for any business unit, department, GL code, or vendor down to the billing component level. There are dashboards with high level graphs and charts than can be easily and quickly reviewed by management. The reports can be blended with all systems for the most accurate results right at a user s fingertips. Business intelligence allows for the ability of departments, such as IT and finance, and of business units to generate data that can be acted upon. This is achieved by maximizing the value of information from the supporting TEM service components, and drawing on complementary business applications. Each stakeholder group may have different requirements of information needed from the database, so the more flexible the reporting tool is, the more business intelligence will be available. 3

The IT group will be interested in lists of circuits by type, by network or location. They would also be interested in termination points for redundancy planning and network operations trouble reporting. The Finance group will be interested in cost trends by department and by type of service. The Sourcing group will be interested in detailed cost per type of service and volume which can be used in contract negotiations. The Accounting group will be interested in monthly allocation costs, accruals and posting credits. The Business Units or Departments will be interested in user friendly descriptions of services that are charged to their P&L. Within each of the groups there should be requirements for high level dashboard type reports for management as well as drill down type detailed reports for staff. Wireless Management Wireless deployments are expanding at a rapid pace and wireless expenses are becoming a greater portion of Telecom spend so companies are looking more towards TEMs when needing a wireless solution. Mobile devices include Cell Phones, Blackberrys, PDAs, WAN cards, pagers, and others. TEM service includes, but is not limited to, procurement, auditing and cost management, bill processing and chargeback, inventory management, rate plan optimization, service optimization, monthly exception and clean up projects, help desk support, device deployment. The physical interaction by the TEM can be to a detailed extent which includes preparing wireless devices for deployment, completing installation for users, educating and training users regarding carrier related features and functions, addressing user issues or concerns upon setup, troubleshooting software and hardware related issues for wireless devices, and communicating with end users concerning troubleshoot status. The TEM can also ensure that wireless devices, applications, and servers comply with the Customer corporate standards and policies and that the wireless devices, applications, policy settings and servers are up to date with latest technology and software. In addition, the TEM can work with wireless carriers to identify possible outages in Customer locations. If located on site, TEM staff can expedite resolution, prepare and maintain Level 1 Help Desk resolution blueprints, provide input and manage Customer Intranet website to help educate users with respect to the wireless Support policies and protocols. Market Data (for Financial companies) -With limited headcounts and database skills, the Finance and Market Data staff needs help in controlling the vast amount of invoices and maintaining the inventory every month. Market Data is the life blood of any financial institution and therefore needs every bit of urgency and priority. Issues such as misapplied payments, inventory exceptions and service disconnection notices can quickly becoming a major distraction to the group s focus. A capable TEM can offer a Market Data solution similar to what is done for Telecom bills including: Invoice processing - from receiving the invoices to submitting to A/P for payment. Invoices can be received by the TEM, then logged, tracked and coded to proper P&L for allocation. Account maintenance -ensuring that all invoices are received and all payments are made on time. Inventory reconciliation reconciling all invoices against the Market Data inventory. This ensures the accuracy of services billed and all reconciliations are done by a specifically developed system. Invoice auditing - billing exceptions are researched for legitimacy and rates are compared to contracts. Reporting - Summary and detailed reports of all Platform, Entitlement, and Infrastructure amounts are provided. Non-Recurring / Technology Billing In addition to recurring Telecom bills, a TEM with the appropriate capabilities can also provide the full scope of billing services for non-recurring, one time charges and other technology bills. For many companies the Purchasing, Project Managing, Accounting, Finance, and Warehouse groups are all segregated both departmentally and geographically. The Non-Recurring Bill Process is decentralized and there are many different people who can be involved for each individual invoice. Contract Rates, contractual discounts, the ordering and disconnecting of service and a variety of other components of an invoice can sometimes take days to dig through and weeks to research in order to ensure that the charges are accurate. Similar to recurring, service solutions include: Invoice processing - Invoices with valid purchase orders are processed. Vendor management - follow-up with vendors for missing invoices, payment questions, credit issues, etc. Claims management -any disputes are filed directly with each vendor and monies withheld as necessary. Claims are tracked and followed up on with each vendor until resolved. Payables management involved in the full cycle of the process, from the time a request is made until the time a check is sent. Checks are cut, stopped and re-issued as needed. All vendor-aging is managed and expenses are minimized. Auditing and Exception resolution - all receiving is done in a timely manner, all purchase orders have sufficient funds, all charges are appropriate, and all vouchers directly reflect invoices. Reporting - the same level of Business Intelligence as for recurring type bills. Network Procurement Involves service pricing requests, placing orders with carriers and following up to ensure that the inventory is properly updated and that installs, disconnects and MACs are done in a timely manner. This can range from simple phone installations to complete facility opening or closings. 4

Controlling and maintaining a network inventory can be one of the most time-consuming tasks in the telecom world. Requests for new services and cancellations of existing services mean that the inventory is constantly changing. Vendor contract commitments mean that you need to keep a close eye on which vendors you are ordering with so you aren t hit with surprise contract penalties. In a perfect world, approval processes would always be followed, SLAs would always be met and follow up would never be required. That is not the case and that is why outsourcing to a TEM with experience and knowledge in this area makes sense. Network Procurement solutions should include several things: Centralized Ordering Workflow Funneling all orders and requests through a standardized and managed procurement work flow ensures high levels of consistency in terms of both the approval process and turn around time. Contract Commitments By always maintaining a close eye on the levels of spend with each vendor, clients can be assured that they will never be hit with underutilization or other contract penalties. Open Order Accruals Will guide Finance departments on accruing for pro-rated charges for services that have been installed but haven t started appearing on the bills. Sourcing / Contract Negotiations You need to renew or enter into a contract with various Telecom and Technology vendors but you re not sure about pricing for your existing services, the services needed or what the fair market price actually is for these services. There are countless variables relating to service options, volume commitments, tiered discounts, and terms & conditions. This requires a combination of industry knowledge with a lot of diligent, time consuming work. This service covers the entire negotiation process including an initial baseline inventory / spend analysis, an industry benchmarking comparison of rates and discounts for needed services and an itemized Terms and Conditions issues lists. A typical contract negotiation process delineates the undertaking into four phases: Pre-negotiation, RFP, Negotiation and Post Negotiation. Pre-Negotiation Phase - the current telecom contract with a particular carrier is summarized along with any amendments to highlight the major terms and conditions, contracted services and rates, and discounts and waivers. A rate analysis spreadsheet documenting current rates and volumes and potential benchmark rates is created. A detailed issue list is then created, documenting current contract terms and conditions that could adversely affect the client and outlining key deficiencies, missing elements, and optimal recommendations. Issues are discussed with the client s decision makers to determine their priority and will offer consultation as to their attainability. Key issues are labeled as must haves or they may be used as leverage and treated as concessions during contract negotiations. RFP Phase - If the client chooses the RFP route. The TEM will consult and advise the client throughout the process. First, a number of carriers will be selected to respond to the RFP. Second, the client will inform the TEM which Terms and Conditions are of importance to include. After receiving the client s input, the draft RFP is created based on information assembled in the pre-negotiation phase. At this point a timeline will be established and the approved version of the RFP will be sent to participating Carriers. Once carriers respond to the RFP by submitting their responses, the data will be collected and assimilated in order to make a recommendation of which carrier best meets the client s needs. Time is scheduled with the carriers to present the proposals. After such presentations, one or more carriers are selected. Negotiation Phase Support is provided by the TEM during the negotiation stage. During the process, the TEM will document content of contract discussions and reconcile the issue list with the discussions. Concurrently, the contract is reviewed for accuracy and consistency to ensure carrier concessions are captured. Finally, the TEM will review the final version of the contract and reconcile with the issues list to prepare for final signature. Post Negotiation Phase - After the negotiation, the TEM works with the client to determine and facilitate installations of circuits, services, etc. and at which locations. The TEM will then work with the client to determine local contracts for each location. Upon the client s request, written orders will be placed with the chosen carrier designating order specifics as well as coordinate circuit and place disconnect orders for replaced services. Project Management / Telecommunications Consulting TEMs with the right level of knowledge and experience can also offer strategic and project management telecommunications consulting. Projects include coordinating the relocation of telecom service to a different site, switching services to a different carrier, and coordinating phone system installations, just to name a few. Project managers use proven techniques to ensure on-time, within-budget implementations with minimal user downtime. Consulting services that assist in reducing costs and increasing efficiencies as part of a per-site or global solution is also possible. 5

What is considered to be the most important catalyst that will drive a successful cost saving solution? At the core of Telecom Expense Management is proper management of the inventory. There is no short cut or way around it; if you re not managing your telecom inventory, you can t be managing your expenses. The basic premise is that inventory management is the link to having visibility over expenses. Each expense component must tie back to a circuit or service tracked as a valid asset. When companies realize the importance and put an effort in place to get control of inventories, most take the path of least resistance and rely on the carriers to tell them what they have. Carriers are in the business of selling service and increasing their revenue and profits. Their focus is not to help you keep your inventory down to a minimum thereby reducing their own revenue. In fact, using carrier data as an asset management tool is like sending a fox to count your chickens. It is not in your best interest to rely on the carriers to tell you what inventory you may have. The key is to have an independent inventory of all the telecom services being used across all carriers. The independent inventory should be used to verify the carrier billing data not the other way around. Building inventory based on the carrier billing without validation is conceding that the carrier billing is correct, when in fact It has been found has found that about 80% of invoices have some errors. As an enterprise customer, you should only pay for the services and inventory you have in place and are using. Just paying bills is not enough as any TEM provider or process can do that. Only the best in class will make sure you only pay for what you should plus maintain the inventory on an on-going basis. That s the real differentiator. There are many different levels of inventory management. Needless to say, the highest level of confidence and visibility and the greatest return on investment comes when the inventory is managed at the most precise level. The general levels from least detailed to most detailed are: Carrier - Account Number - Billed Telephone Number (BTN) Working Telephone Number (WTN) and Billing Component (BC). The only way to ensure that you are actually paying for what you should, is to verify all charges down to the most detailed Billing Component level. Billing Component (BC) includes all the billing components associated with each circuit, line or device. For example; a PRI line will have a circuit number (WTN) which could be maintained in inventory. In addition to the circuit number, there are sub-billing components such as the B channels, D channels, trunk groups, etc. Each of these components has a contracted charge associated with it. Verifying only the cost of the circuit will lead to missed savings opportunities. As such, inventory should be broken down to the lowest level possible and include the contracted rates and charges for each associated basic and supplemental component. Inventory Management begins with a process. There is one process for creating and cleansing an entirely new inventory and a different one for maintaining it once it is established. Various sources should be used including carrier contracts, customer service records (CSR), carrier portals, carrier CDs, EDI data, physical inventory checks, etc. The key is to bond with carrier Orders or Procurement systems once the inventory is built in order to maintain its accuracy. Managing the inventory requires qualified staff who are assigned with responsibilities to maintain updates. It is important for the individuals managing the inventory to enter accurate information for each type of circuit, line or device as well as the billing components, if being maintained at that level. They must be able to distinguish between a data circuit verses a voice circuit and a PRI verses a T-1 access circuit. If a circuit or device is not categorized properly it will be difficult to verify costs against contract rates. It would also cause inaccurate reporting and visibility. Firms may spend significant amounts to buy or build asset management systems. Such inventory database software may be considered the best in the industry, but if the tool is not coupled with a qualified, diligent staff that maintains updates, follows up on the exceptions and runs proper analyses as part of ongoing maintenance programs, the tool is useless. It s fair to say that key stakeholders, when asked, will agree that inventory management is key to managing expenses. However, lessons learned by many is that just having a tool to house inventory is meaningless without someone managing it and doing so to its full extent. Only then, will it be obvious that inventory management is the core of all the TEM areas Procurement, Audit & bill processing, Optimization, Contract negotiations and Reporting. How does Wireless Inventory differ from Wire line Services? Increases in enterprise wireless deployments have added more intense challenges in terms of managing inventory. There are constant daily changes to wireless inventory and if not managed every day, will quickly get out of hand. Due to the inherent mobility of devices, in addition to cost, there is also a great deal of emphasis on security concerns around wireless email and corporate applications. It is therefore mission critical to know who has what and when. In order to do this, you need a full inventory tool with updates through end-to-end life cycle of devices. This is one of the key reasons why it is strongly recommended by research firms to move towards a Corporate Liability method over T&E to gain control of wireless management and visibility. With fixed / mobile and cellular / wi-fi technologies converging, it becomes even more critical to know what you have, know what your paying for, and leveraging that with the carriers and related contracts. 6

How does the Inventory to Billing reconciliation work? The way the reconciliation process should work is that data from each invoice is verified against an accurate inventory every month. Inventory and rate matches would be considered valid for payment. Any discrepancies or exceptions should be researched to determine if they are valid or not. If they are valid services and the rate is correct, the inventory should be updated. If they are not valid services or rates, they should be challenged and disputed. By doing this, it ensures you have an accurate, independent inventory and are not at the mercy of the carriers. Inventory management is a moving target. Services are being ordered and cancelled all the time. The key to proper inventory management is consistency in maintaining it. Ideally, there should be closed loop processes in place whereby every Move, Add or Change is updated in the inventory at the time it takes place. As services are ordered, changed or cancelled the inventory must be updated. As the invoices come in they should be audited every month against inventory. If there are changes that were missed by the procurement group then the billing group must research and update inventory accordingly. Once an inventory item is entered into the inventory database it must remain indefinitely. Even if it is disconnected or cancelled the inventory record should stay with the appropriate Disconnect status. This allows analysts to go back in the event of billing issues or business questions that may come up in the future. Do not assume that because a disconnect order is placed, it will be removed from the bill. As disconnect orders are placed, the inventory should be updated with the disconnect status and date. When the invoice is processed this should come out as an exception if still on the bill. Depending on the carrier SLA for disconnects, a determination can be made if a dispute is made and credit is due. What are some of the reasons why companies seek formal TEM services? Companies seek assistance from the TEM industry for a variety of reasons. The most common ones are: Telecom is one of the largest non-personnel expenses, making it more difficult to reduce and maintain The IT department is not familiar with accounting practices and can t effectively audit the invoices The finance department is not familiar with the technology or the services being billed and therefore can t effectively audit the invoices. There is lack of visibility into the company s telecom costs and inventory and neither the finance nor the IT departments have the capacity to get control of it. Our company needs to comply with various industry regulations (ie. Sarbanes and Oxley) Despite mergers amongst the telecom carriers, the services are getting more complex and more difficult to track Overall telecom spend is rising, even though the prices for services have come down over the years. Outsourcing may be a quick, low-risk way of ratcheting up your Total Telecom Cost Management performance. Telecom requires people with specialized knowledge. Many enterprises find they do not have the people, have problems retaining workers, or do not have the resources to manage telecom internally. A firm that specializes in outsourcing should be able to drive significant benefits from economies of scale. Specialists are able to apply what they learn from each client s project and share best practices across all their clients. What departments would be involved in the TEM process and how does it benefit each of them? Typically, the 3 main departments that get involved are: IT / Network Engineering - operational responsibilities Through monthly monitoring, a clean and accurate inventory of all services and assets is maintained. Outsourcing instantly provides a staff who has expertise in Procurement, Inventory Management, Contracts, Project Management An accurate inventory allows IT to make network decisions quicker and with more certainty. Standardizes carrier data making it easier to compare and contrast multiple vendor prices, services etc. Order standardization and enforced business rules ensure that the appropriate services are ordered with the appropriate vendors. TEM provider handles all disputes / issues with vendors allowing Finance and IT staff to focus on their priorities. IT Finance - responsible for telecom bill payment 75% of Finance Managers see lack of staffing with expertise in telecom industry as the number one concern when trying to manage expenses. Outsourcing instantly provides a staff that has expertise in Billing, Auditing, Service Optimizations and Inventory Management. Through individual line level allocations, all expenses are charged back to the appropriate cost centers and P/Ls. Full visibility and data analysis through reporting makes it easier to adhere to industry regulations (i.e. Sarbanes-Oxley) Open order accruals allow AP groups to begin accruing for services that have yet to begin appearing on the bills. Formal TEM services make budgeting easier and more certain by stabilizing monthly costs. 7

Strategic Sourcing - manage the telecom vendor relationships & contracts. Centralized data source for all vendor spend, inventory and contract information. Bring your own data to the negotiations-table instead of relying on the carriers. Visibility into total vendor spend across all commodities, business groups and geographic regions. What is the expected Return on Investment and Benefits of Outsourcing TEM Services? Industry estimates are as high as $70 to process a telecom invoice internally and a traditional Accounts Payable system can manage most invoices, but telecom invoices present unique challenges requiring specialization. Invoices per year range from 3,000 for Mid Market companies to 15,000 for Fortune 500 enterprises. Recent Industry Reports found that: A formal telecom expense management (TEM) service can improve the realized savings and claims for a company by 200% TEM services produce an average of 21% savings in labor for processing invoices and 31% for service order maintenance. Through process improvements alone, enterprises can save 12% to 18% in costs. On average, invoice process automation reduces late payment penalties from 3.5% to 1.4%. Line level allocations alone can reduce telecom costs by 2.1%. There are big advantages of electronically bonding with carrier data. When bills are received in paper format, it s nearly impossible to perform automated audits. Inefficient manual processing can lead to lost bills, uncontrolled service disconnects. It is estimated that companies average 2.6% in late payment fees. Constant monitoring of invoices and inventory can reduce overall telecom expenses by as much as 30%. One-time credits and on-going savings recommendations more than pays for the service itself. TEM provider handles all disputes / issues with vendors allowing Finance and IT staff to focus on their priorities. One-time credits and on-going savings recommendations more than pays for the service itself. How do companies pay for TEM services? There are two basic ways to pay for TEM services. One is a contingency based option where the TEM provider gets paid based on a percentage of the actual savings and expense reductions. The other is a flat fee where the TEM provider charges one fee every month no matter how many savings it finds or recommendations it makes. More often, companies will agree to a hybrid of the two options opting for the flat fee in exchange for a smaller contingency percentage. The actual numbers will depend on the size and scope of the service being provided. What are some of the typical qualifying questions a TEM needs to know to get started? Total annual telecom spend for wireline voice and data services Number of wireline voice and data lines Number of wireline accounts Wireline carriers used, contracts in place, term and expiration Number of locations to provide Call Accounting How many employees/extensions at each location Do you currently have call collection devices at the locations Total annual wireless spend for voice and data services Types and number of wireless devices, whether they are voice and/or data lines Number of wireless accounts Wireless carriers used, contracts in place, term and expiration If all lines are Corporate or also Personal Liability If there is an inventory in place for both wireline and wireless services and how is it managed / updated How is the wireline and wireless Billing and Provisioning currently being handled (in-house, outsourced) On average how many moves, adds, changes are submitted each month? What sort of growth has the company experienced in the last 1 year, 2 years or 5 years. What department is responsible for managing the telecom expenses (sourcing, IT, Finance) Is carrier billing data currently paper or electronic. Thorough audits would require conversion to electronic. What are the particular needs and concerns that you would like addressed If a domestic only or global solution is sought Conclusion 8

Conclusion All of the TEM processes require analysts with organizational, analytical and people skills. It takes senior-level experience to go into a company and achieve the goals of inventorying (or uncovering) telecommunications networks and services, recommending/implementing changes and representing the client to various carriers. For additional information on Telecom Expense Management, TnT or our services, please contact: Lori Thomas/ Director of Sales email: lthomas@tntem.com or directly by phone at 203.364.9260 9