Editor’s note: Recently, we asked TechRepublic members to send us examples of how they could cut costs for their clients. We received an article from F. Joseph Ginorio, president and CEO of Telecom Cost Management, Inc. (TCMI), a Hamilton, VA-based consulting firm that conducts telecommunications audits, telecommunicating consulting, project management, and other services. Here’s a look at his suggestions for telecom audits.

By F. Joseph Ginorio

Telecommunications costs are an often overlooked, but potentially fruitful, area for cost reduction. CIO magazine recently reported that Cargill, an agricultural and food products distributor, saved $250,000 by blocking 411 (directory assistance) calls on the company’s phone system.

Mostcompanies review their telecommunications infrastructure (voice lines/data/Internet access/cell phones) once or twice per year and generally believethey have a good deal with their carrier contract or pricing plan. More often than not, this is not actually the case. Pricing plans, promotions, and new technology change the telecommunications environment virtually every day. It’s not uncommon for a carrier to reduce per-minute costs or fixed monthly costs and not inform customers of the new pricing structure.

For example, a small business may have 30 voice lines with a fixed monthly cost of $23.95 each. The provider could currently price these same lines at $15.59 but continue to charge the small business at the higher rate. It doesn’t take long for this to add up.

Staying abreast of current pricing plans, promotions, or industry trends is beyond the scope of most companies. IT managers, accounts payable, and dedicated telecom managers simply don’t have the time or resources to track changes in the industry. A telecom audit can help your clients realize the savings available to them in this area.

Contingency and fixed fee audits
A telecommunications audit can yield savings between 10 and 50 percent on the first pass and can continue to ensure optimization of costs with regular reviews.

Audits are approached in two ways: either a contingency, in which the auditing firm receives a percentage of the money it saves its clients, or a fixed fee. Generally, small and midsize companies prefer the contingency approach. With this method, it’s important that both parties agree on how savings are to be measured—this avoids potential disagreements.

Larger firms often prefer the fixed fee simply because it’s easier to manage. Upon completion of an audit, the firms can conduct monthly invoice analyses for discount and contract compliance.

Who needs an audit?
Businesses that bill between $35,000 and $2 million annually usually will reap the largest benefit. Organizations of this size—between 30 and 1,500 employees—tend not to have telecommunications expertise on staff. Contracting for an audit and ongoing management reduces costs and adds directly to profit margins since no overhead is associated with the audit.

A contingency audit is generally 50 percent of the savings for 12 to 24 months. The cost of a fixed fee audit depends on the complexity of the network and the level of detail requested; a guideline is 10 to 15 percent of the annual telecom expenditure. Audit costs are determined by the following:

  • Number of sites
  • Mixture of services
  • Complexity of services
  • Availability of records

How it’s done
A telecom audit has three basic phases (as performed by TCMI):

  1. Acquire documents and create inventory.
  2. Analyze telecom infrastructure.
  3. Report findings and recommendations (see Figure A).

Figure A

The first stage involves collecting and collating telecom invoices, which show average costs over time, and customer service records (CSRs), which are technical descriptions of each line and circuit from the Local Exchange Carrier grouped under a billing telephone number (BTN). The two show a breakout of telecom usage and cost for the organization.

While reading CSRs often requires outside technical expertise, IT or purchasing agents can inventory most of the network and baseline the costs from the invoices. To help make the process easier, auditing companies often use software that acts as both a database and analysis engine for this task.

In the second stage, analysis of the telecom infrastructure, the current inventory costs are compared against pricing plans with the client’s vendor (e.g., AT&T, MCI, or SBC). The current inventory is then compared to competitive pricing and service plans from other telecom providers. Auditing firms keep and maintain databases of current pricing and service plans as well as major tariff changes in the industry. With these databases, auditors can find the most cost-effective plans for their clients.

The auditing firms will also analyze the configuration of the inventory. An auditor may recommend, for example, replacing multiple voice and data lines with DSL, T1s, or bundled services.

The third stage outlines the audit’s reports and recommendations. This will include:

  • A cost model defining voice, data, Internet access, wireless, etc., as a percentage of total, percentage by location, by account code, etc.
  • All the inventory telephone and circuit numbers, baseline costs, annualized costs, trending, inventory descriptions with costs, and some basic statistics (e.g., total calls and minutes) by location, destination, and averaging. For example, a report might show that office A has 10,000 minutes of interstate calling, 5,000 intrastate, and 2,000 international, with 7,000 calls per month.
  • Recommendations of cost-cutting measures. This can begin with the current carrier and then look at alternative options. The auditor may include both alternative configurations and alternative carriers.

(Note: I recommend that an auditing firm be objective and independent from telecom carriers. Companies should ask that question up front to ensure that the firm is acting in the client’s best interests—not the interests of a predetermined provider.)

Do you perform telecom audits?

If you’ve developed a template for your telecom audits, share it with us. If we think TechRepublic members might find it valuable, we’ll feature it on the site.