Revenue Management vs. Revenue Assurance – Expensive/Simple vs. Rationalized/Complex

This is a follow-up on my previous post “Are Telco Revenue Assurance Teams Responsible for all Revenue Loss and Fraud?” Because when writing that post, I realized that in order to really talk about Revenue Management, like I had promised, I would need to first talk about it in relation to Revenue Assurance.

This is because Revenue Assurance and Revenue Management are not meaningless buzzwords that just happen to share the word, “Revenue,” in common. They are in fact just two different ways of describing the Revenue Posture of a telco (more on that coming soon).

Are You Operationally Responsible?

Based on our experience, when you compare Revenue Assurance to Revenue Management, the main difference is whether the team (regardless of name) is operationally responsible. And by that, I mean whether your team is basically “in charge” of whatever operational team is in scope – e.g.: billing, mediation, interconnect, network, etc.

If those teams report to you and you not only get blamed when something goes wrong with them, but you also get credit when things go right with them, you are operationally responsible. If you are available to help, but the ultimate responsibility for those systems and environments lies with the operational managers (billing, mediation, interconnect, network, etc.), then you are not operationally responsible.

The simplest way I can put it, is if you ARE operationally responsible, then you’re doing Revenue Management. If you are are NOT operationally responsible, then you are doing Revenue Assurance. That does not mean you are either doing one or the other – you probably do a bit of both, again depending on your “Revenue Posture.”

I will talk about that, and Revenue Management, more in upcoming posts. For right now I will focus on Revenue Assurance.

Being operationally responsible is neither a good nor a bad thing. It is simply a decision by management that we as professionals need to accept – as long as we can execute that decision with integrity. 

But deciding between Revenue Assurance and Revenue Management, deciding between operationally responsible or not, is like any other strategic decision. When you make this decision, you are consciously saying that you will be less efficient and effective in some way, in order to gain benefits in other ways. 

Revenue Assurance, A “Redundant” Function

And that is certainly the case with Revenue Assurance. By not being operationally responsible, Revenue Assurance teams think of themselves as a redundant function (again, this is neither good nor bad) whose main task is to identify risk, quantify risk, and create controls based on management’s appetite for risk.

But, because they are not operationally responsible, they are a support function rather than a line function – there is no line on the company accounts that shows how much revenue comes in from their operations because they do not have “operations.”

This means that Revenue Assurance teams are not responsible for billing, mediation, interconnect, network etc. – on the contrary, those departments are “clients.” This is a huge difference, because Revenue Assurance cannot work by “telling” these operational teams “what to do” – Revenue Assurance has to work by building consensus, trust and mutual cooperation.

At the same time, operational teams must recognize the value Revenue Assurance brings to their operations and actively seek out the help of Revenue Assurance to help them solve problems. And the only way they will do this is if they are the ones held responsible for any revenue loss or fraud that occurs in their environment.

Cost vs. Benefit, Revenue Assurance vs. Revenue Management

The benefits of the Revenue Assurance model are clear – by being a redundant function rather than a management function, Revenue Assurance tends to be more cost effective. Revenue Assurance allows for a clear rationalization of how much gets spent identifying risks, quantifying risks and creating controls based on management’s appetite for risk.

In contrast, Revenue Management tends to be more expensive, because rationalization is much more difficult. When you’re directly responsible for revenue risk, loss and fraud, you tend to take a brute force approach and make sure everything is done right the first time, every time. This is effective, but that kind of desire for perfection is usually expensive.

In general, Revenue Assurance is a much more complex and subtle function than Revenue Management – it requires skilled, consensus-building managers and analysts and the right corporate environment. It also requires a real commitment on the part of management, the Revenue Assurance team as well as the operational managers, in order to make it work.

If any or all of those resources are not available, or that environment cannot be created, it can become very difficult to perform Revenue Assurance, making Revenue Management the easier, simpler, but more expensive, choice.

Revenue Assurance also functions according to management’s appetite for risk – and if that appetite for risk is high, or it changes over time, the team’s assurance activities must be flexible enough to adjust. Revenue Management assumes very little appetite for risk, which is again why it tends to be more expensive and less rationalized than Revenue Assurance.

Expensive/Simple vs. Rationalized/Complex

In the decision between expensive and simple (Revenue Management) vs. rationalized and complex (Revenue Assurance), telcos choose what is best for them in their unique situation.

In some cases, an extreme of either could be entirely appropriate – teams doing only Revenue Management or only Revenue Assurance. But in our experience, most telcos have a mix of both, depending on their situation, their environment, and their appetite for risk.

When we talk about Revenue Posture in the weeks to come, we’ll have benchmarks to help you figure out how much Revenue Management or Revenue Assurance you do – not just so you can understand and find out what you’ve been doing, but find out how you can adjust and optimize how you move forward.

Until then, you should know, I LOVE BOTH Revenue Management AND Revenue Assurance.