Establishing a Telecom Service Management Structure

Data telecommunications developed as an arcane art designed to connect users and devices to remote mainframe computers. Managing connectivity cost of the service was inherently difficult, because they were "buried" in the mainframe budget, which itself was buried with other "overhead" items. These vaguely defined telecom expenses were gradually allocated back to business unit managers, who perceived the process to be arbitrary and capricious, and responded by developing strategies to control the size and timing of these allocations. The allocation method, moreover, led business unit managers to believe that once the annual allocation fee was set they were entitled to consume a limitless supply of IT resources, at no incremental cost.

The advent of the personal workstation (PC) and client/server processing, meanwhile, fueled a dramatic increase in telecommunications demand, capacity, and expense, and placed telecom managers under intense pressure to control costs. Unfortunately, telecom managers have seldom had the level of business knowledge needed to control telecommunications usage in a way that allowed business units to pursue corporate goals.

These historical telecom trends underscore a central conflict of business organizations today. On the one hand, the CIO is focused on minimizing IT expense. On the other, business unit managers demand higher volumes of IT and telecom resources, and better quality of services.

The Service Management IT structure represents an approach to resolving this inherent conflict. It does so by dividing the issue into two parts and assigning responsibility for managing each to the party best able to do so. Specifically, under the Service Management model, the CIO is responsible for providing the appropriate services of the required quality and at the lowest practicable (and continually decreasing) unit cost. The business unit manager is responsible for controlling demand by selecting the quantity and type of services appropriate to reaching the unit's business goals and paying for them.

Under the model, telecom services are purchased from a catalog and unit price list that describes those services in terms meaningful to the business manager and constant (in unit cost) over the budgetary cycle. Through this process, business users can make intelligent tradeoffs between services (fancy phones vs. simple phones, for example), costs, and business requirements.

A viable Service Management environment consists of five key elements:

  1. Precise expense management, asset management, and accounting
  2. Appropriate Services definitions
  3. Accurate, cost-based rates
  4. Accurate, consistent user inventory and usage measurement
  5. A period of parallel (allocation and virtual chargeback) operation

Lets explore each of these in some detail:

1. Precise expense management, asset management, and accounting

In concert with internal or external auditors, a common sub-account definition for Telecommunications must be established within the chart of accounts of each business unit. They must be consistent across business units. This is usually a third or fourth level sub account within the general ledger's chart of accounts. All telecom costs and assigned depreciation must flow into this account, which should be divided into the following sub accounts:

  • Personnel
  • Depreciation
  • Purchased Services
  • Expenses (principally, non-depreciable equipment)
  • Carrier Services

Today, in many businesses, telecom costs appear in differing accounts of the various entities to which the services are delivered and billed by telcos, PBX vendors, maintenance providers, technicians, etc. In addition, those (typically one line) accounts often include a host of other, non-telecom costs which have not been appropriately budgeted for. Audits of such accounts have revealed items such as company cars, office furniture, club memberships, PCs, etc. In such an environment, determining the size of telecom expenses - much less managing them - becomes impossible.

Asset management is generally the most common challenge, as few businesses have achieved or maintained adequate techniques for accurately tracking committed expense for telecommunications services. As a result, most firms often pay for new services from when they are scheduled, rather than from when they are accepted into service, and most pay for deleted facilities for long after they have been ordered removed. This mis-billing often represents an overcharge of 15 percent or more.

2. Appropriate Services definitions

Services should be clearly defined, simple for business unit managers to understand, and not require user understanding of the engineering behind the service provisioning. The goal is to allow the business unit to reduce or incur costs as a direct result of actions taken. For example, data services should be priced by the "seat" or end-user device, and vary only by the sophistication, reach, and speed requirements of that "seat." Many companies define the building blocks of a service, rather than the service itself - for data communications support to an office, the user may have to figure out what kind, size, and speed line will be used, what access and router must be used, how big it must be, etc. As a result, rather than focusing on optimizing business performance, users become responsible for technology selection, design, and strategic technology planning and management - tasks they are not qualified for. Under such circumstances, users become understandably overwhelmed and complain about "poor telecom support."

3. Accurate, cost-based rates

The most important attributes about rates, other than that they be market competitive, is that they be fixed for the budget period and make logical sense - for example, a call to the next state had better cost less than a call to India.

4. Accurate, consistent user inventory and usage measurement

Consistency of usage measurement is more important that precision. Measuring the number of characters sent by a workstation is not helpful, since at that level users can neither predict nor control usage, certainly not in a way that will directly affect cost. (While products exist that do precisely measure usage, they can increase the cost of telecom by up to 50 percent - thereby defeating the purpose.)

Application design, and end user device type, more than the users' behavior, most strongly determines the data telecom capacity necessary. A more effective approach is therefore to assign a rate to each type of device, based upon its probable peak load on the network. Thus, a CAD/CAM workstation costs more to support than a PC on a gigabit network, which costs more than a PC on a 100 Mbps network, and so on.

From the user's standpoint, this perspective provides a more predictable and understandable indicator of cost. While inexact, it is logical (rather than arbitrary) and produces a budgetable and end-user controllable cost environment - which, after all, is the goal of the chargeback process.

5. A period of parallel (allocation and virtual chargeback) operation

A full budget cycle will typically be needed for the business unit manager to adjust to a Service Management environment. These adjustments will include understanding charge-back based costs, managing usage, adjusting the number and type of End User Devices employed, and even determining whether customers should call collect, use an 800 number, or place a toll call.

While the first year of parallel reporting can be traumatic, a Service Management environment quickly delivers significant benefits. The business unit manager gains the ability to control costs by adding, deleting, or changing services or tools. IT and telecom managers, meanwhile, are held accountable to objective unit cost and quality benchmarks, so that their progress can be observed by all of the business unit clients.

The Service Management model represents an opportunity to begin planning the business' IT requirements, utilization and achievement in an open and objective environment where both the demand and the supply side of the equation are accountable for the things that they can actually control.

Carl Pitasi is a Compass America senior consultant specializing in network and telecom issues. He is based in the company's Oak Brook, IL, offices.

Copyright © 2003 IDG Communications, Inc.

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