Don't Let Your Assets Cloud Business Performance

John Hayes, Business Impact Consulting Practice Manager, Telcordia

Fixed costs can land your business in a fix. Communications Service Providers (CSPs) make huge investments in capital assets every year. But do you know where your assets are? Do the deployed assets match the planned and recorded assets? And are they supporting profitable services? For many CSPs, it is difficult to truly know.

The problem is complex. To make wise investments, you must be able to assess the likely benefit of each investment option. Once procured, you must know the correct location, use and depreciation for each and every network asset in order to accurately monitor the performance of the assets and the services each supports. Armed with that information, you can then accurately assess current profitability levels and more accurately evaluate prospective investments.

Should I Buy the Blue One or the Red One?

The first question is "in which initiatives should I invest?". Unfortunately, the typical process simply ranks individual investments according a single metric. Worse yet, the approach for forecasting performance of individual investments often varies widely between divisions. And in the end, many decisions are made based on "political" considerations.

What's needed is a structured process and set of tools to make sense of the alternatives. The right tools can assess the portfolio as a whole. Some projects are linked, and should be assessed as a package. Other projects are strategic imperatives, or mandated regardless of return. The right tool can balance multiple metrics such as net present value, operating income and capital requirements, and can adjust the recommendation based on constraints applied to these metrics. And a standardized process can help assure consistency of inputs from across all divisions.

It's Ten O'clock. Do You Know Where Your Assets Are?

Network assets represent a fixed cost to the business, and fixed costs are famous for clouding the measurement of business performance. Many CSPs do not consistently track network assets, whether largeor small, across departments (engineering, procurement, operations, finance) or lines of business (wireless, wireline, business). If finance has a different classification for an asset than operations, then often the wrong depreciation schedule is applied. This in turn can lead to unplanned write offs, and either overly optimistic or over pessimistic measurement of service profitability.

What's needed is a disciplined process and a consistent data model across organizations that can capture and preserve good asset information. The first step is to restructure the fixed asset register so that the financial view of assets reflects their operational use. Then, processes should be implemented that capture the movement of each asset through its lifecycle of acquisition, use and retirement and then provide a reflection of that information back to finance.

Too Much Information

Even with accurate information about assets, it is quite complex to apply the fixed costs to individual services. And yet, measurement of service profitability depends on doing just that; accurately.

What's needed is a set of tools that employ long run incremental cost (LRIC) techniques to accurately apply fixed and shared costs to individual services. This approach allows CSPs to meet regulatory requirements, to set appropriate pricing, and to accurately measure service profitability and return on investment (ROI).

Thus, the cycle can begin again, with better, more informative inputs for the next round of capital budgeting and investment selection. A holistic, structured approach based on good information and metrics makes all the difference in optimizing not only the return on your significant investment, but optimizing shareholder value as well.

With decades of expertise and proprietary tools, Telcordia provides in-depth financial and regulatory consulting services to help you assess, select and measure investments and meet external mandates. We can also help you adopt an "information infrastructure," like the fully-hosted, subscription-based Telcordia® Common Language® Information Services, to further synchronize both internal and external asset-related communications.

For more information, contact John Hayes, Business Impact Consulting Practice Manager, Telcordia at jhayes@telcordia.com or visit our website.