What Can Happen if Telecom Costs Are Not Managed

Posted on Posted in Articles, Cost Savings, Telecom Expense Management

What would happen if your organization spends more than it should on telecom costs?

 managing telecom costs

As important as managing telecom costs is in a large corporation, it is under even more scrutiny in government organizations or public companies, where executives and directors are accountable to the larger public.

One such example happened in the mid-00s. Major Canadian newspapers ran stories in March of 2005 with headlines like “Six-figure waste on city phones” about the City of Toronto’s telecom costs. The country’s largest-circulation newspaper, “The Toronto Star,” reported: “In a damning report made public yesterday, auditor general Jeffrey Griffiths revealed that no one has been keeping proper track of rates being charged for telephone, cellphone and Internet service.”

Considering that Toronto had a total budget of C$20 million (about US$17 million) per year in telecom at that time, the amounts cited were not actually that big, and proportionately quite typical of large organizations. The types of billing errors, such as being charged higher long distance rates than the carrier contract, are common in any large organization. However, since government officials and taxpayers are not aware of how much work the telecom department does to keep the communications systems running, emergency services, and other mission critical work, the telecom managers were publicly blasted for being careless. The telecom department became a scapegoat for government overspending.

Here’s how this story was reported:

Holyday (a councilor) thinks city council should demand that heads roll.

“This kind of sloppiness just can’t be tolerated,” he said. “I think whoever’s responsible for this should pay the price. It’s just not good enough to keep throwing good money down the drain all the time.”

He said he’s not looking forward to explaining the report to voters. “We have to answer to the shareholders and in this case, that’s the residents and the taxpayers, and they’re not going to be happy that this money has been wasted.”

In many organizations, the oversight of telecom costs is not managed by any single department. The telecom department plans and purchases services, contracts are handled through the legal department, and invoices are paid by the accounting department. There is often very little co-ordination between these departments, and often, there is no job description that states “look after the phone costs.” In the past few years, larger organizations have become more aware of the need to manage their telecom costs, and there are more individuals dedicated to focusing on these areas.  

At that point in time, the City of Toronto had telecom services in 900 locations, that were billed on 2900 different accounts, for 27,000 land-line telephones, and 11,000 wireless devices. The Auditor General’s report mentions that the City actually built some of its own inventory systems, but they were not capable of handling the vast amount of details, and the systems were definitely not designed to reconcile against invoices.  Over the past decade, the availability of specialized tools to manage this massive amount of invoices and data has significantly increased, giving telecom managers a much better handle on telecom expenses. 

The recommendations made in the Auditor General’s report were a very good start to gaining control and reducing the telecom expenses for the City. Among them, here are some proactive steps that were recommended:

  • Ensure that cellular billing information is provided to all departments. Departments are to ensure that controls are in place for recovery of non-business calls.
  • Review the use of cell phones by all City departments, and deactivate unused ones.
  • Implement policies for acquisition of cellular phones, telephone, long distance, etc.
  • Send out inventory information for land-lines, data circuits, and cellular phones to every department on an annual basis, and have them verify that all the services are actually in use.
  • Contract management is key to managing costs. This involves negotiating the most optimal pricing structure and terms, and then ensuring that invoiced charges match contract pricing.

What else could have been done to reduce the City’s costs? Our next few blog posts will provide strategies to help reduce and manage telecom expenses, drawn from Avema’s 20 years of experience consulting large organizations.

 

If you would like more information on how to more effectively manage your company’s telecom expenses, please contact Avema for a free consultation.

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