Revenue Leakage Issues: Chapter II

In an earleir article we Interviewed Ed Tobia and Michael Hurle of PricewaterhouseCoopers' ERM team in Philly about a particularly dicey little secret common to many vertical industries slogging their way through market deregulation.

Revenue leakage.

Tobia had listed a number of reasons for this all-too common problem in the retail power and telecom sectors, from implementation of unproven systems to the entrance of new retail players lacking technical skills or back-office operations to address the changing regulatory environment, to limited internal resources to address ongoing problem resolution.

As a follow-up to that story, we decided to take an in-depth look at several issues that both Tobia and Hurle view as central themes in the revenue leakage cycle. Those include limited internal project management resources and its overall impact on the implementation of billing, CIS or other enterprise-scale systems, distinguishing between project requirements and documenting the business process; and proper factoring of your in-house/outsource options.

According to Tobia, one of the major problems facing utilities, from the outset of deregulation, seems to be the level of expertise of internal staff tasked with project implementation. Simply put, few had the training or understanding of an end-to-end process, let alone competitive market requirements, prior to major system implementations. In most cases, such work was often managed by "available" staff, as opposed staff skilled in technology and implementation. And when these often massive projects began to edge toward failure (many did), the notion of outsourcing seemed like a pretty good idea. Not to knock outsourcing, of course, so long as it's for all the right reasons. Hurle says that the great outsourcing tidal wave of years past had as much to do with a "knee-jerk" reaction to internal project failures as it did with sound operational strategies.

"In this fast-changing environment, management often has a difficult time holding a project accountable for its progress. And thus they now have a general tendency to outsource the responsibility. They will ship a difficult project to an outside group and hope for success. Often we find that there are not the right accountability procedures in place to maintain or ensure a successful outsourcing of a critical system or process," Hurle says. "Accountability processes and procedures internal and external should always be in place, and contractually agreed upon, well in advance of implementation."

Another point Tobia raises involves the need to make a distinction between project requirements and documenting business processes.

"We were once brought in late for a large-scale system implementation. The first thing we wanted to look at were the process flows. There weren't any. We were offered the system requirements only. Well, system requirements might be a Bible of sorts for these large projects, but it doesn't identify what the critical path is. Requirements alone won't reveal the total impact on ancillary systems and procedures. If say the implementation involved an Internet-based customer sign-up project, and that platform goes down, how would that system failure affect billing or accounting? Basic system requirements won't answer that question," Tobia says.

Bottom line here, says Hurle, is that, in one form or another, success or failure often comes back to people management, whether you decide to keep the project in-house or pass it on to a third party. One upside of outsourcing, however, is that project management discipline and performance criteria can be established ahead of time. When projects are managed internally, they're not often scoped to have project management disciplines applied.

"It's a fallacy to think that when you outsource, you outsource your problems," Tobia says. "External and internal projects need to be policed equally."

Hurle suggests the following minimum considerations should be included before signing a service level agreement for outsourcing:

Clearly defined performance metrics; Clear dispute resolution procedures; Transparency of billing/ease of auditing process; Defined support availability; Uptime/downtime requirements; Penalties for nonperformance or compliance. Requirements for systems to conform to customers' security standards; Clear ownership for back-up and recovery.