Telecom Expenses Ballooning? Get Your Pin Ready
I recently had the privilege to work on another project for a favorite client of mine. I’ve been engaged with this client since 2010, when I performed a telecom savings audit for the company and saved it about 30% on its telecom costs in the process -- not bad for a first client project. Since then, I’ve worked on various telecom-related projects for this client, and after a recent lunch with the CEO, we agreed that it might be a good time for another savings audit to check in on everything.
Quite honestly, I didn’t expect to find too much in the audit. I figured that the lessons had already been learned, that the company was managing its costs better now, and that this was more of an opportunity to clean up a few small items and build some goodwill with this client. Needless to say, I was very surprised when we were able to find them 30% savings -- again!
This company is well-run, with conscientious, talented IT staff. While it has grown over the years, it has been at a manageable pace. And so, after we had cleaned things up initially in 2010, I had expected the company would be fine in keeping costs under control. It’s not as if the telecom expense fairy came, waved her wand, and the costs magically grew by 30%. So I asked myself, why did this happen? How did this happen? And how can it be avoided in the future? And I came up with some interesting observations worth sharing.
Weighing IT Priorities
For the last three or four years, this client’s IT department was focused on a massive amount of system replacements and upgrades. Not surprisingly, the expense management became less of a priority. In fact, most IT organizations have some pretty significant priorities -- network security, technology evaluations, end user support, various new IT projects such as exploring the implementation of artificial intelligence (AI), blockchain, ERP, cloud, etc. -- that can lead to expense management taking a backseat.
Examining Organizational Change
Another significant reason for higher telecom costs is organizational change. Every time there is a change in staff (IT staff/management, CFO, accounting, etc.), the understanding of the telecom situation (inventory, design, contract, billing, vendors, etc.) is not necessarily passed on -- and this can bring on big problems.
In eight years, this client had four changes in management. With change, comes shuffling of responsibilities, assignments, hiring/firing of staff, etc. -- and these additional changes are not always done with care.
Think about staff changes through the lens of telecom expenses: If one IT staffer has an inventory of their telecom products and services and a process to scrutinize and manage the invoices, decides to leave the company, and that knowledge isn’t passed on to the new staffer, then that new staffer simply does the best he or she can (not recommended).
Especially in cases where the new staffer doesn’t have the same level of expertise in telecom, he or she may not realize that automatic contract renewals could have been put in place. And if these renewals are not tracked, this will be a lost opportunity to find more cost savings for the next one to three years!
In the case of my client, the majority of the data network contracts (with different expiration dates) were about to be renewed by the IT manager. These costs were not competitively bid, and they were about to be re-contracted for three more years with no additional savings. The manager didn’t have the time or the knowledge of other vendors that could provide suitable competition. Fortunately, we were brought in one week before the contracts were to be signed and were able to put a plan into action in time.
Also, with staff turnover, sometimes important pending tasks don’t get passed down from the old staff to the new. Take, for example, the need to disconnect old services. This client’s management changes resulted in disconnects that were missed and paying for unused services.
Countering a Lack of Expertise
Let’s talk billing. Telecom invoices are often confusing and lengthy. In the case of my client, the IT department briefly reviewed the invoices to see if anything looked out of the ordinary, but they couldn’t properly scrutinize the invoices because they simply didn’t have the expertise on staff. Invoices routinely lack adequate descriptions and the location of each service. Plus, each vendor’s invoice looks completely different from the next. Understanding and interpreting a vast array of invoices is necessary to keeping costs under control, and this is a different skill from the normal technical role of IT.
But it’s not just a matter of staffing your organization with people who understand how to review a telecom invoice. With new technology constantly emerging, market price points are continually changing. Understanding your needs, knowing all the technology and vendor options that exist, knowing how to negotiate the best possible price points -- these are all important to keeping your costs down. There was no way for this client to have all of this information with a limited staff. So it did the best it could with the resources it had available, and not surprisingly left money on the table in the process.
Now, it’s not like the telecom expense fairy enters and waves her magic wand and expenses go up by 30% overnight. Expense accrual happens ONE EVENT at a time.
In other words, 5% this year, 7% next year (which is now 12% annually)… and eventually these small issues add up to 30% higher expenses. Besides shifting IT priorities and organizational management changes, there are other things that may cause costs to balloon. In addition to market shifts brought on by new competitive vendors and emerging technologies, there could be billing errors like the wrong amount of tax being charged. My client had six different events occur that caused its telecom costs to be higher than necessary.
Preventing Expense Creeping
Now that you are more aware of the kinds of things that can cause expenses to creep up over time, as an IT manager, how can you prevent these things from happening to your business? Here’s a few tips from my experiences:
- Documentation and Handoffs -- Inventories need to be kept and processes need to be documented, and all this information needs to be accessible to others on staff. Subject matter experts should have a backup person, in case the SME leaves the company, goes on vacation, etc. The processes and documentation should be reviewed with all new staff by either the existing staff or their backup.
- Hire Expertise (Or Outsource It) -- If you don’t have the expertise and you do nothing about it, you will be overspending -- period. It’s just a matter of time! Telecom costs will become inflated, just like they did with my client, until someone with expertise comes in to clean it up.
- Policies & Procedures -- Policies and procedures must be in place to manage contracts, add/delete services from inventories, review market pricing regularly for each service, review telecom technologies regularly, and so forth.
- Systems -- For mid- to large-sized enterprises, systems should be in place to track inventories, contract expiration dates, and the like, so that money doesn’t fall through the cracks. Again, this service can be outsourced to a Telecom Expense Management (TEM) firm, as an alternative.
The Bottom Line
In the case of my client, the CEO decided that it was important to bring in outside expertise. This allowed the IT department to stay focused on its core priorities and added sorely needed expertise to the company’s resources. Think of it as similar to a scenario in which an organization chooses to bring in an external attorney with a specialization, even though it already has an in-house legal department. Whether you choose to bring in an outside expert or hire an internal resource with the necessary expertise, it’s important to recognize that all these factors contribute to telecom expenses escalating over time.
At the end of the day, if your expenses aren’t visible, they can’t be managed. If there is not a process in place, costs will eventually balloon. If there is no expert (internal or external) with true skills in this area, money will pile up. It will never be visible to management, until an outsider with skill comes in to clean it up.