Enterprise Risk Management

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Enterprise risk management: Protecting profits, keeping customers

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Enterprise Risk Management

  1. 1. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing. March 2012 | www.tmforum.org INSIGHTS RESEARCH Free to members $1,750 where sold Enterprise risk management: Protecting profits, keeping customersSponsored by:
  2. 2. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENABLING SIMPLICITYBeing a service provider in today’s market isn’t provider’s business, TM Forum is collaborativelyeasy. Delivering the right level of service, at the delivering the standards that are taking the costright price - and making a profit – is a tall order. and risk out of, and putting the flexibility into,To succeed, your business needs to run with running your business.maximum agility, simplicity and efficiency. Visit www.tmforum.org today to join the world’sAs the global industry association focused on leading service providers who are using oursimplifying the complexity of running a service Frameworx standard to enable simplicity.
  3. 3. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERSReport authors:Rob Rich, Managing Director, TM Forum Insights Researchrrich@tmforum.orgTony Poulos, Market Strategist, TM Forumtpoulos@tmforum.orgPublications Managing Editor:Annie Turneraturner@tmforum.orgEditor:Claire Manuelcmanuel@tmforum.orgCreative Director:David Andrewsdandrews@tmforum.orgCommercial Sales Consultant:Mark Bradburymbradbury@tmforum.org Page 4 Executive summaryPublisher:Katy Gambinokgambino@tmforum.org Page 6 Section 1Client Services:Caroline Taylor Understanding enterprise risk managementctaylor@tmforum.org Page 9Corporate Marketing Director:Lacey Caldwell Senko Section 2lsenko@tmforum.org Credit and collections managementReport Design:The Page Design Consultancy Ltd Page 14 Section 3Head of Research and Publications: Fraud managementRebecca Hendersonrhenderson@tmforum.org Page 22Advisors: Section 4Keith Willetts, Non-executive Chairman, TM Forum Strategies for customer retentionMartin Creaner, Chief Executive Officer, TM Forum Page 28Nik Willetts, Senior Vice President ofCommunications, TM Forum Section 5 Revenue assurancePublished by:TM Forum240 Headquarters Plaza Page 36East Tower, 10th Floor Section 6Morristown, NJ 07960-6628 How do service providers view risk management, and howUSAwww.tmforum.org should they proceed?Phone: +1 973-944-5100Fax: +1 973-944-5110 Page 42ISBN: 978-0-9852058-4-3 Sponsored features© 2012. The entire contents of this publication are protected by copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any means: electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, TeleManagement Forum. TM Forum would like to thank the sponsors andadvertisers who have enabled the publication of this fully independently researched report. The views and opinions expressed by individual authors and contributors in this publication are provided inthe writers’ personal capacities and are their sole responsibility. Their publication does not imply that they represent the views or opinions of TeleManagement Forum and must neither be regarded asconstituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements and sponsored features in this publication does not in any way imply endorsement byTeleManagement Forum of products or services referred to therein.www.tmforum.org INSIGHTS RESEARCH 3
  4. 4. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERSExecutive summaryRisk is an inherent, pervasive aspect of our We believe that each of these disciplines isdaily existence, affecting us in both our important both to service provider profitabilityprofessional and personal lives. In order and to preservation of customer relationships.to mitigate or profit from risk, whether The profitability aspect for each of these isconsciously or unconsciously, individuals and easy to see. Proper credit management canorganizations routinely practice various forms avoid expending resources on customers whoof risk management. cannot or will not pay. Collections management TM Forum’s Risk Management for can be prohibitively expensive, especially ifCommunications Service Providers Guidebook litigation is involved. Fraud management can(GB952) defines risk as: “An uncertain event or help to avoid expending resources on usersset of events that, should they occur, will have who have no intention of paying, but also canan effect on the achievement of objectives.” result in the elimination of some fraudsters Effective risk management involves the through legal action, protecting future profits.identification, assessment and prioritization of Churn management can lower customerrisks (whether they be positive or negative), management costs and limit acquisition costs,in conjunction with some sort of response as well as ensuring a continuing revenue(planned or unplanned) which generally involves stream from retained customers. Revenuethe application of corporate resources for assurance can identify and capture revenuesrisk monitoring, discovery and minimization/ that have already been earned, increasing bothoptimization of risk-related events. Clearly, the top and bottom line.proficiency with risk management can make a Less obvious is the impact on customerhuge difference in maintaining the health of an experience (CE). While not as influential toindividual or organization. CE perhaps as high-performance services To provide a better sense of the types of or personalization, getting the bills right,risk inherent in the operation of a service fighting fraud and catching dissatisfaction earlyprovider, we provide in Section 1 a sample through churn analysis can provide customers‘risk universe’. This shows 28 categories with feelings of greater predictability andof risk, ranging across domains such as security, increasing confidence and trust,markets, financial aspects, human resources, and providing great simplicity. Simplicity andenvironment, privacy and security, supply trust are important customer requirements,chain, legal, regulatory, network operations and great brand builders. In addition, betterand many others – reinforcing the need for credit management can give service providersproficient and proactive risk management more confidence to provide better offersprograms. to customers, also potentially increasing While the full range of the risk universe is satisfaction and loyalty.well beyond the scope of this report, Sections Each of these sections looks at the current2 through 5 focus on four key operational areas situation and likely future developments, andof risk management for any service provider, makes recommendations for approachingnamely: these challenges more effectively. A great deal of effort has been expended credit and collections management; over the last decade or so in providing fraud management; guidance pertaining to risk management. A churn management; number of risk management standards have revenue assurance. emerged, fostered by efforts from the Project4 INSIGHTS RESEARCH www.tmforum.org
  5. 5. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.Service providers must determine their prioritiesand embed them into their action plansManagement Institute, the National Institute tactical and reactive responses by externalof Science and Technology, the International and internal forces, and their profitability andOrganization for Standardization, TM Forum customer relationships will most certainly feeland a variety of other bodies. Still, there the effects.is much work left to do for many service Service providers should plan to conductproviders to develop broad proficiency in risk an annual risk assessment, identifying whatmanagement. defines key risks and perceived impact, When we asked service providers to prioritizing the aspects of each of the risks,do a quick self-assessment on their risk and determining priorities. In conducting themanagement proficiency versus other industry assessment, service providers should broadenplayers, only 21 percent of respondents ranked the scope beyond traditional financial andthemselves as leaders or above average, regulatory risks, considering the full value chainwhereas 37 percent rated themselves as below and the environment it operates in.average. They may find it useful to conduct some In addition, when asked about their top scenario planning to evaluate the full impact ofthree drivers for risk investment, 72 percent the more significant risks, and provide these ascited findings from audits, clearly a reactive input to the strategic planning process. Fromstance. There is some good news as well there, they will need to evaluate their abilitythough; 56 percent said that a chunk of their to manage or respond to risk-related events,risk management investment was driven by and how well those response processes arestrategic planning at the corporate level, and integrated into their operating processes.61 percent said they had improved their risk Finally, service provider senior managementmanagement profile through implementation must determine their priorities and embedof best practices at the departmental level, so them into their action plans. This may seemthere are clear pockets of proactivity here. straightforward to seasoned managers, but the Respondents also identified their top risks road to enterprise risk management is fraughtover the next three years, with customer with challenges, many of which are delineatedretention and growth leading the way, privacy in Section 6 of this report.and security second, and achievement of As our industry transforms, with broaderfinancial targets third. service portfolios, new technologies, extended While the service providers we spoke with value chains and increased competition,have deployed widely varying approaches proficiency in enterprise risk management willover the years, it is increasingly clear that become even more critical to service providerservice providers need to take the initiative profitability. After all, at its most basic level, riskto focus strategically and holistically on risk management is about creating value in harmonymanagement, or they will be driven to recurring with the enterprise mission, goals and strategy.“As our industry transforms, with broader service portfolios, new technologies,extended value chains and increased competition, proficiency in enterprise riskmanagement will become even more critical to service provider profitability.”www.tmforum.org INSIGHTS RESEARCH 5
  6. 6. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERSSection 1Understanding enterprise risk managementIn a sense, risk management is as broad and standards developed by other organizations indeep as life itself, and something we practice the specific context of the service provider, andvirtually every day, knowingly or not. There is therefore we will refer frequently to it in thisinherent risk in most things we do, and many report. Risk management goals, definitions andof the products we use and processes we processes vary broadly according to context,adhere to are designed to mitigate or reduce nature and perceived impact, and may involvethose risks. Risk applies to the action of every a variety of organizations within the enterprise,living being, including enterprises, and proper as well as a number of external entities, suchmanagement can make a huge difference in as partners, government agencies (such asquality of ‘life’ or in avoidance of death for an regulators, law enforcement agencies, publicorganism. health and safety agencies) and financial So how do we define risk management? institutions, among others.TM Forum’s GB952, Risk Management forCommunications Service Providers Guidebook1, Understanding the risk universedefines risk as, “An uncertain event or set of As noted above, risk must first be identifiedevents that, should they occur, will have an before one can plan to manage it. The ‘riskeffect on the achievement of objectives.” universe’ shown in Figure 1-1 is an example, Risks can come from virtually anywhere, drawn from GB952. While we will not attemptoften driven by financial or economic change, detailed definitions of each of these categories,political change, criminal activities, program it is easy to see the potential breadth thator project failures, accidents, natural causes, enterprise risk managers must deal with. Thisinitiatives from competitors (direct or indirect) particular example enumerates 28 categories.or even from poor planning and execution. As noted above, each of these areas will Accordingly, effective risk management have their own risk management goals,involves the identification, assessment and definitions and processes according toprioritization of risks (whether they be positive context, nature, organizational involvementor negative), in conjunction with some sort and perceived impact, as well as varyingof response (planned or unplanned) which levels of investment by each servicegenerally involve the application of corporate provider. Importantly, each of these areasresources for risk monitoring, discovery and must be at least assessed and the impactminimization/optimization of risk-related events. understood, estimated, characterized and A number of risk management standards hopefully quantified if the service provider ishave emerged, fostered by efforts from the to demonstrate a prudent approach to riskProject Management Institute, the National management.Institute of Science and Technology, the The scope of risk management is far tooInternational Organization for Standardization broad for a single market report to deal with inand a variety of other bodies. TM Forum has any depth. Indeed, many of the componentsalso formed a Risk Management collaboration of the risk universe could easily require agroup and produced documents such as the full report on their own. Accordingly, weafore-mentioned GB952. GB952 recognizes have chosen four important elements of riskand provides perspective on a number of the management on which to focus. They are: 1 www.tmforum.org/RiskMgmtV1.16 INSIGHTS RESEARCH www.tmforum.org
  7. 7. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.This report focuses on four essentialelements of risk management Credit and collections management. Figure 1-1: Risk universe for service providers Credit management is an important and widely practiced set of activities aimed at Accounting & increasing sales revenue through extension Liquidity & Credit Market Capital Structure Reporting of credit to customers who are thought to be a good credit risk, and minimizing risk of loss of revenue resultant from bad debts by Tax Legal Code of Ethics Regulatory restricting or denying credit to customers who are not a good credit risk. We also delve into collections, but to a lesser extent, as we believe that an effective credit management Revenue Integrity Cost Integrity Fraud Supply Chain function is essential in obviating collection risk and expense. Fraud management. Fraud management Network Information Physical Assets Hazards Operations Technology seeks to minimize the impact of intentioned actions by an individual, group or enterprise to receive through deception products, Sales, Marketing & Communications & Market Dynamics People services and/or revenues from the target Customer Service Investor Relations & Commercial service provider(s) without remitting expected value for those products or Mergers, Acquisitions Planning & services. Major Initiatives Programmes & Divesture Resource Allocation Churn management. Churn management (sometimes called customer retention management) seeks to prevent or minimize Privacy & Information Governance Geopolitical Environment Security the impact of the loss of customers to direct and indirect competitors. Source: TM Forum’s GB952, Risk Revenue assurance. Revenue assurance Management for Communications seeks to minimize the impact of revenue Service Providers Guidebook leakage, by reducing or avoiding it. Fundamentally, it is about accurately billing for customers’ use of products and services and securing all revenue due. We have chosen these four areas partiallybecause the threats they address are relativelywell understood and seen to be significant,and because, generally speaking, process-oriented and software solutions exist that canbe deployed by service providers. But we havealso chosen them because of the impact thatthey have on profitability, and the secondarywww.tmforum.org INSIGHTS RESEARCH 7
  8. 8. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERSand often forgotten impact they have on getting the bills right, fighting fraud andcustomer experience. catching dissatisfaction through churn analysis The profitability aspect for each of these is can provide customers with feelings ofeasy to see. Proper credit management can greater predictability and security, increasingavoid expending resources on customers who confidence and trust, and providing greatcannot or will not pay. Collections management simplicity. Readers of our customer experiencecan be prohibitively expensive, especially if reports2 know that simplicity and trust arelitigation is involved. Fraud management can important customer requirements.In addition,also avoid expending resources on users who better credit management can give servicehave no intention of paying, but also can result providers more confidence to provide betterin the elimination of some fraudsters through offers to customers, also potentially increasinglegal action, protecting future profits. Churn satisfaction and loyalty.management can lower customer management Despite these benefits, not all servicecosts and limit acquisition costs, as well as providers are adept or willing practitioners ofinsuring a continuing revenue stream from risk management. Many people we spoke withretained customers. Revenue assurance can feel that risk management is still being seen asidentify and capture revenues that have already an expense as opposed to an investment or anbeen earned, increasing both the top and important operational cost. Others say that whilebottom line. it is increasing in importance due to regulatory In addition to the profitability angle, effective pressure, it’s unlikely their company will addressprograms in these areas can improve the it at what they believe to be the appropriatecustomer experience. While not as influential level. These statements are not without merit,to customer experience perhaps as high- and we will address ways of approachingperformance services or personalization, investment in risk management in Section 6.“Many people we spoke with feel that risk management is still being seen asan expense as opposed to an investment or an important operational cost.” 2 www.tmforum.org/insightsCEM8 INSIGHTS RESEARCH www.tmforum.org
  9. 9. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.Prevention better than cure whenit comes to credit managementSection 2Credit and collections managementCredit management is an important and The cost of chasing delinquent accounts iswidely practiced set of activities. It is aimed at increasingly expensive.increasing sales revenue through extension of High-value customers who pay their billscredit to customers who are thought to be a in a timely fashion are increasingly difficultgood credit risk and minimizing risk of loss of to acquire and retain, giving rising levels ofrevenue resultant from bad debts by restricting competition and saturation of markets.or denying credit to customers who are not a Service providers must take a proactivegood credit risk. approach to updating their credit practices, The credit management function within integrating them with their marketingmany companies also frequently includes philosophies and tying activities more tightly tothe collections function, which seeks to the enterprise view of customer lifecycle.recover past due accounts receivable fromdelinquent customers. Generally speaking, the Tying credit risk management toeffectiveness of credit management lies in the marketing philosophyactivities used for judging the credit worthiness Before establishing credit managementof a prospect, rather than in procedures used in practices and metrics, it is important tocollecting the owed amounts, as the collections understand the philosophy of the organization,process can be long-lived and expensive. and its appetite for risk. Companies may range The old maxim “an ounce of prevention is a from being risk averse, to accepting minimalworth a pound of cure,” surely applies here. risk, simply be a bit cautious, or be ‘hungry’ orTM Forum developed and constantly refines its aggressive in their pursuit of business rewards,Revenue Assurance Maturity Model with this in accepting (or in some cases, ignoring) themind, see page 13 for more details. inherent risk in their strategies. Deployment of proper and up-to-date credit In many cases, aggressive acquisitionand collection management processes have strategies have led to risk management best-always been important for prudent service practices being de-prioritized, resulting inproviders, but perhaps now it is more important accelerated customer acquisition, but also inthan ever to deploy these practices. This is true substantial increases in bad debt and fraud levelsfor a number of reasons, such as: and the acquisition of more than expected lower- ARPU customers putting pressure on margins. Economic factors have wreaked havoc on Aggressive acquisition often exposes issues many small business and consumers, and in various places, like marketing operations, many may have experienced changes in their sales channel management, credit-risk and credit status. fraud management. Management practices and Fraudsters are becoming more sophisticated metrics must be addressed to reduce resultant in their attempts to obtain credit, and the exposure to bad debt to acceptable levels. Internet provides an efficient mechanism While some may want to blame bad debt and for distribution and discovery of fraudulent delinquency primarily on the state of economic methods of obtaining credit. Indeed, stolen affairs, the credit management processes and and forged identities are a growing problem thresholds set in those processes are often across the globe. equally responsible.www.tmforum.org INSIGHTS RESEARCH 9
  10. 10. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERS At a minimum, it is important for companies terms of risk. For many service providers, ato attempt to quantify the risks inherent in their customer is viewed as simply creditworthybusiness approach and attempt to address or not at the time of initial acquisition. Thisthem appropriately before implementing is fine at the point of initial assessment, asthe approach. It is also important for the it is in context of the goods and servicescredit management function to participate they are purchasing, but what if they arein this assessment as both a provider of looking to upgrade, or the service providerinformation and a developer of processes and is considering them for an outbound offer?metrics based on the resultant risk appetite. This segmentation can be tailored to theConformance to corporate strategy here is service provider’s objectives, but even ratingcritical to the organizations’ ability to execute. an account a high, medium or low risk is preferable to today’s approach of pass/fail at aManaging credit exposure: Tying credit given point in time. Credit status could also bemanagement to the customer lifecycle a factor used in determining Customer LifetimeMany service providers have been relatively one- Value (CLV), an important concept in shapingdimensional in their risk management practices, customer experience.with assessment typically occurring only at the An advanced technique might includetime a new customer is acquired. In this case, implementation of behavior scoring, quantifyingonce the customer is activated, they may have the risk associated with each individuala sort of ‘free reign’ until problems present customer based upon a number of factors, suchthemselves. Of course, exposure is higher during as payment history, percentage of availabletimes of economic hardship, as some portion of credit taken, original credit score and customerthe customer base will likely suffer hardships that demographics. In fact, behavior scoring hasimpact their ability to pay, and this could occur been used in other industries to effectivelyany time during the life of their relationship. predict credit risk in a number of cases. Accordingly, service providers are nowrealizing that checks should be done more Adding a carrot to the stick:frequently, at events like contract renewal, Rewards for good behaviorservice upgrades and new device activations. Finally, periodic credit assessment can beA more proactive approach might be as part of used to influence behavior and customercampaign management – check credit status satisfaction. In addition to qualifying for newprior to making an offer; it’s also possible that offers, customers with lower risk profiles mighta customer or prospect’s credit has improved, be periodically offered perks, like temporaryand they might be eligible for new offers. In grants of additional voice minutes, dataaddition, several of the service providers we capacity or usage, or perhaps an offer tospoke with are monitoring their customers’ try a value added service (VAS) for free or at ausage to avoid an excessive buildup of their low cost.receivables balance over their current usage This not only rewards their good behavior,period. While this is generally done on a it potentially increases loyalty, and may resultperiodic (perhaps daily) basis, some are looking in additional revenue if the customer enjoysat real-time balance monitoring. a new VAS offered, and decides to buy more of it. Very few service providers offer perksGetting a better view: Segment your base based on good credit history, but this it is notby creditworthiness uncommon in other service-based industriesAdditionally, service providers should consider – after all, these are customers that servicesegmenting their customers more finely in providers generally want to keep.10 INSIGHTS RESEARCH www.tmforum.org
  11. 11. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.Extracting payment is challenging andcan often be an expensive exerciseCollections: Managing receivables must also have tools to address this in a veryfor maximum returns efficient manner if they are to garner any profitNo matter how carefully planned the from the customer.assessment and exposure management The second case is customers who haveprocesses, service providers are inevitably the ability to pay but refuse to pay, or simplybound to suffer receivables challenges. have not paid for some reason. This may beCollections are a real challenge for service due to some sort of dissatisfaction, and theyproviders, as chasing delinquents is a may be seeking attention to their issue inresource-intensive exercise with limited withholding payment, or it could be as simpleresults. Extracting payment from unwilling as a bill that was lost or not delivered to theor economically challenged debtors is an correct address. This may be a customerexpensive exercise, and it is often impossible with unreasonable demands or one that hasto recover the full amount of the exposure,making the service provider settle for a fractionof the sought amount. In addition significant fees are also due to What can Business Benchmarkingcollection agencies for their efforts. In more do for you?extreme cases, where litigation is involved,costs may be much higher. Of course, all of More than 170 service providers from over 65 countries use perfor-these remedial approaches assume that the mance data from TM Forum’s Business Benchmarking Program todebtor is well-known and can be reached. In improve efficiency and effectiveness. It is free to TM Forum membersmany cases, debtors may simply ‘disappear’, who are service providers. Participants receive free, secure, individual-resulting in a total write-off even after an ized reports showing their performance against each metric and haveextensive and expensive search. This in a access to broader results and statistics in the benchmarking database.nutshell is why we maintain that an ounce of Aggregated results are available for a fee to non-participating serviceprevention is worth a pound of cure. providers. These come in a variety of flavors and it is Service providers pool critical industry data through a secure,important for service providers to recognize independently audited web-portal.the differences between these categories of The Program was developed, and is constantly refined, by servicepayment risk if they are to avoid increased providers, for service providers. It uses quantitative metrics rangingcosts, dissatisfied customers and reduced from tactical to business performance data.process effectiveness. TM Forum’s Business Benchmarking Program is based on the comprehensive set of business metrics defined in our Frameworx suiteEssentially there are four types of risk: of standards. It allows you to compare your business and operationalThe first is those customers who have good performance against the rest of the industry.intentions, but cannot afford to pay. This is In addition, TM Forum benchmarking studies, proposed by serviceperhaps the purest form of bad debt, and can providers, help you measure the impact of changes in your business,be dealt with in a variety of ways, potentially providing a balanced scorecard across finance, customer service andpreserving the long-term relationship if the operations. Benchmarking before and after projects allows you tocustomer can be put on a payment plan and assess how much you have improved, and where you stand againstcorrect their behavior. Service providers must your targets. These regular studies provide updates on industry shiftshave the data to assess the ongoing value of and trends.the relationship, based on CLV, and if they For details of upcoming studies or to participate, pleasecontinue the relationship, must dynamically contact Chyrssa Dislis, Senior Manager, Business Benchmarking,manage the ongoing situation to ensure that cdislis@tmforum.orgthings are not spinning out of control. Theywww.tmforum.org INSIGHTS RESEARCH 11
  12. 12. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERSa legitimate issue to be addressed. Service or inappropriate re-entry and addressproviders need processes to quickly assess these issues.the issue and the customer’s risk going In the final analysis, the means must fit theforward, and should be cognizant of the case and the end in the collections process.CLV in addressing the customer. To do this Service providers must remember thatthey need an efficient, rapid way to move different customers introduce risks for differentthe customer out of collections and into the reasons and must be dealt with accordingly.customer support organization. If the customer Another factor that should be clear (if notremains and the problem is solved, service obvious) to service providers is the use ofproviders should consider close monitoring of a variety of customer contact channels forthese customers, as further problems may be collections. This can improve the amountdiscovered and solved before the issue again of revenue collected and realize significantescalates to collections. cost efficiencies, and many service providers Habitual late payers can be a problem for already have these capabilities available in theirthe service provider, but these issues should contact centers.be able to be proactively addressed prior to Common tools such as SMS or email canthe collections process through a variety of be used here, in addition to traditional voicetechniques, including proactive monitoring and channels. Service providers also have the abilityreminders, late payment charges, temporary to implement hot lining, which automaticallyinterruption of service, credit term adjustment routes outbound calls from a mobile phone intoand other techniques. Again, it is important to the collections contact center. This can be aunderstand the nature of the customer and if very effective tool.there other mitigating factors contributing to In summary, service providers have thethe behavior. opportunity to reduce their credit exposure, The final category here are those reduce customer attrition rates, increasesubscribers whose intent is to deceive and customer satisfaction and ultimately improvedefraud and have no intention of paying. their profitability through proper credit andClearly the best solution here is to implement collections management. But for many, thiseffective credit assessment up front to will require significant upgrades in the businessminimize subscription fraud. practices, processes, metric development In addition, the avoidance of bad debtors (see box on page 11) and systems they deployseeking to re-enter into relationships either today, as well as a change in view of creditthrough exploitation of deficient assessment risk management from a relatively static,practices, or use of fraudulent identities. infrequently addressed issue to one closelyService providers need behavioral profiling tied to the customer lifecycle, and to customertools to help them detect fraudulent experience.“Service providers have the opportunity to reduce their credit exposure,reduce customer attrition rates, increase customer satisfaction and ultimatelyimprove their profitability through proper credit and collections management.”12 INSIGHTS RESEARCH www.tmforum.org
  13. 13. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.TM Forum’s Revenue Assurance MaturityModel brings great benefits to members TM Forum’s Revenue Assurance Figure 2-1: The phases of revenue assurance maturity Maturity Model TM Forum’s Revenue Assurance 1. Initial Maturity Model is part of TM Forum’s 2. Repeatable Revenue Assurance Solution Suite (GB941). Well established and widely 3. Defined used throughout the industry, it 4. Managed has been refined and honed by our members over a long period and has 5. Optimizing brought great business benefits to 1. Ad-hoc, chaotic. Dependent on individual heroics. many of our members. 2. Basic project/process management. Repeatable tasks You can read about real-life 3. Standardized approach developed. Designing-in control commences. successes in the TM Forum Case 4. Leakage quantitatively understood and controlled. 5. Continuous improvement via feedback. Decentralized ownership, holistic control. Study Handbook – in the 2011 version, QTel Group (page 10) gained business benefits, in millions of Figure 2-2: The progression of revenue assurance maturity dollars. The 2012 version includes case studies from Telefonica O2 Increasing maturity Slovakia (page 8), Greece’s Cosmote (page 20), Verizon Retail (page 27), Low Medium High True Corporation (page 22) and UNE EPM Telecomunicaciones (page Who Frequently new Majority of CSPs who Typically CSPs with ventures or older have had an active RA a strong commitment 32). For further details, visit www. services where ROI program for several to RA tmforum.org/CaseStudyHandbook is not clear years We are working on ways of Good performance measuring revenue assurance, to demonstrate the direct link between Establishing a Establishing repeatable Establishing repeatable functioning RA processes to track processes to prevent progress through the Maturity Model department leakage leakage and the decrease in revenue leakage (see box on page 35). Identifying and Where possible recovering leakage prevent leakage Figure 2-3: Revenue Assurance Maturity Model Organization Tools How a business organizes its revenue assurance (RA) responsibilities The use of tools is one of the most tangible guides to RA maturity. highlights the alignment between the goals of the business as a However, maturity relates to the cleverness of design and whole and the goals of the RA organization. Organizational fit is also a implementation, the synergistic use of tools to meet multiple business reflection of the business culture and the extent to which the business objectives, and the blend of activities supported by automation as well culture is suited to genuinely adopting RA objectives. as the raw processing power, number and cost of tools. People Process The maturity of RA can in part be gauged from the number and skill of RA involves the improvement of processes, but is itself a high-level human resources dedicated to RA or providing secondary support. process containing many detailed processes that should be improved over time. Influence The ability to proactively instigate, manage and deliver change is a sign of mature RA. Influential RA delivers financial rewards to the business and a mechanism to continuously improve the efficacy of RA against its full potential.www.tmforum.org INSIGHTS RESEARCH 13
  14. 14. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERSSection 3Fraud managementIntroduction not limited to users, but can be perpetrated byFraud, it seems, has been around almost as dealers or other partners. In addition, advanceslong as the communications industry and has to digital private automatic branch exchangeevolved along with the industry, growing to (PABX) systems brought new opportunitiesmore than $40 billion in damages per annum, for fraudsters.by some estimates. Fraud activity has been As services and technologies exploded inresilient, adapting to myriad new technological the 1990s and beyond, the industry introducedintroductions and growing significantly, although new technologies such as 3G/UMTS, WiMax,growth has been attenuated somewhat by the Wi-Fi, xDSL, DTTH, IPTV, end-to-end IPbroad adoption of fraud management processes networks, all manner of digital content andand tools by vigilant service providers. many sophisticated applications. Perhaps Some of the earliest fraud, starting in the most relevant to fraudsters, it has also brought1960s on the Public Switched Telephone true global expansion of digital technology,Network (PSTN), involved ‘phreaking’, or using and communications networks and massa variety of boxes (red, back, blue) to signal market digital devices. While most of the newtones that could take control of the network and technology so far has not spawned manyavoid billing for calls. Among the more famous more creative fraud schemes, the sheer scalepranksters were Steve Wozniak and Steve of expansion has created opportunities forJobs, founders of Apple Computer, according to fraudsters, especially in targeting less vigilant orWozniak’s book iWoz: Computer Geek to Cult fraud-aware service providers.Icon: How I Invented the Personal Computer, Moreover, as we will explore later, theCo-Founded Apple, and Had Fun Doing It. expansion of technologies and scope of On one occasion Wozniak claims to have implementation will almost inevitably lead todialed Vatican City, identified himself as Henry more fraud opportunities.Kissinger and asked to speak to the Pope. Inaddition, wiretapping and account fraud created Definition and sizingfurther problems. First-generation analog Of course, many episodes and types ofmobile networks also suffered account fraud fraudulent behavior can take place throughoutas well as cloning of phones and tumbling, a the extended service provider enterprise;scheme that exploited first-generation roaming virtually any business or administrative processsystem weaknesses. is subject to fraud, and creative minds over the The second generation of wireless years have spawned myriad ways to perpetratetechnology introduced the first wave of digital fraud. Moreover, it can extend throughouttechnology and expanded global adoption the value chain. Figure 3-1, drawn from thesignificantly through cheaper standards-based TM Forum’s Fraud Classification Guide v1.1,handsets and better roaming. It also solved document GB954, shows the broad scope ofsome of the analog security problems. But this fraudulent behavior, identifying more thanexpansion also brought with it a whole new 70 types of fraud.round of fraud, including premium-rate services For the purpose of this report, we will limitfraud, roaming fraud, SIM-boxing, call-selling our definition of fraud to the following, which isfraud, and many other schemes. Fraud also is consistent with the TM Forum’s collaboration14 INSIGHTS RESEARCH www.tmforum.org
  15. 15. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.Many types of fraudulent behavior can take placethroughout the extended service provider enterprisegroup definition: “Communications fraud: and/or revenues from the target serviceThe intentioned action(s) by an individual, group provider(s) without remitting expected value(e.g. syndicate), or enterprise (e.g. partner) to for those products or services.”receive, through deception, products, servicesFigure 3-1: Communications fraud category matrix Source: TM Forum Fraud Classification Guide v1.1 (C) consumer, other wholesale (E) enterprise, Focus: (I) internal (W) Fixed line telephony Mobile telephony Data services (Mobile) DSL and cable) Data services (broadband (enterprise PTP) Data services (hi-cap and backhaul) Data services Video (cable, satellite, IP) Fraud types Subscriber fraud C, I x x x x x x Misappropriation of assets – Theft C, I x x x x x x x Misappropriation of assets – Embezzlement I x x x x x x x Misappropriation of assets – Lapping I x x x x x x x Misappropriation of assets – False invoicing I, Supplier x x x x x x x Misappropriation of assets – Long firm fraud Customer x x x x x x x Inventory fraud I x x x x x x x CNAM fraud W x x Wangiri call back fraud C x Financial misreporting – Revenue falsification I x x x x x x x Financial misreporting – Expense capitalization I x x x x x x x Financial misreporting – Understating liabilities I x x x x x x x Financial misreporting –Misallocation of cash I x x x x x x x Bribery – Cash I x x x x x x x Bribery – Labor I x x x x x x x Bribery – Holiday I x x x x x x x Bribery - Sponsorship I x x x x x x x Bribery – Consultancy fees I x x x x x x x Bribery – Credit cards I x x x x x x x Extortion and blackmail I, Other x x x x x x x Kidnap – Stranger Other* x x x x x x xwww.tmforum.org INSIGHTS RESEARCH 15
  16. 16. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERS (C) consumer, other wholesale (E) enterprise, Focus: (I) internal (W) Fixed line telephony Mobile telephony Data services (mobile) DSL and cable) Data services (broadband (enterprise PTP) Data services (hi-cap and backhaul) Data services Video (cable, satellite, IP)Fraud typesKidnap – Political Other* x x x x x x xKidnap – Tiger (abduction forms part of a robbery, murder, or any other crime) Other* x x x x x x xMoney laundering Other* x x x x x x xInsider dealing I,W x x x x x x xProcurement fraud I x x x x x x xPayroll fraud – Ghost employees I x x x x x x xPayroll fraud – Payroll adjustments I x x x x x x xExpense fraud – False claims I x x x x x x xExpense fraud - Undisclosed credits I x x x x x x xExpense fraud – Inflated claims I x x x x x x xTreasury fraud IBypass – Trombone W x x x x x x xBypass – SIM-boxes W x x xBypass – Fixed cell terminals W x xBypass – Premicells W xBypass - GSM/UMTS gateways W x xBypass – Landing fraud W x xBypass – VoIP bypass W x xBypass – Interconnect fraud W x xBypass – Toll bypass W x x xBypass – Third country fraud W x xBypass – Grey routing W x xBypass – Int’l simple resale W x xMissing trader fraud Other* x x x x x x xCarousel fraud Other* x x x x x x xRoaming fraud C, I x xCloning fraud C x xSpamming – Malware C x x x xSpamming – Spoofing C x x x xSpamming – IP/phishing C x x x xInt’l revenue share (IRSF) W x x xPBX hacking fraud W,E,Other x xIP – Subscription or identity C x x x x16 INSIGHTS RESEARCH www.tmforum.org
  17. 17. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.Many types of fraudulent behavior can take placethroughout the extended service provider enterprise (C) consumer, other wholesale (E) enterprise, Focus: (I) internal (W) Fixed line telephony Mobile telephony Data services (mobile) DSL and cable) Data services (broadband (enterprise PTP) Data services (hi-cap and backhaul) Data services Video (cable, satellite, IP) Fraud types IP – AIT/click fraud W x x x x IP – DoS (denial of service) E x x x x IP – Content sharing E,C x x x x IP – Identity trading C x x x x x IP – Spyware E,C x x x x IP – Pharming E,C x x x x IP – Online brand threats E x x x x IXC – Arbitrage W x x x IXC – Call looping W x x x IXC – QoS exploitation W x x x IXC – Technical config fraud I,W x x x SMS – Spoofing C x SMS – Faking C, I x SMS - Malware C x x SMS – Global title scanning C x SMS – Flooding C x SMS - Spamming C x SMS – Open SMSC C, I x Pre-paid – PIN theft I x x x x Pre-paid – PIN guessing C x x x x Pre-paid – Stolen voucher I, C x x x x Pre-paid – Altering free call lists I x x x x Pre-paid – Manual recharges I x x x x Pre-paid – Voucher modification I, W x x x x Pre-paid – Duplicate voucher printing I, W x x x x Pre-paid – Fraudulent voucher reading C x x x x Pre-paid – Illegal credit card use for recharges C x x x x Pre-paid – IVR abuse/hacking C x x x x Pre-paid – IN flag modifications I x x x x Pre-paid – Handset manipulation C x x x x Pre-paid – Handset installment C x x x x Pre-paid – Roaming C, E x x x x*Other: Related to external type of fraud, most commonly business fraud threats, can affect all kind of organizationswww.tmforum.org INSIGHTS RESEARCH 17
  18. 18. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERS It is important to note that fraud negatively that losses within their company had increasedimpacts not only the service provider, but or stayed the same.all members of the value chain, including Unfortunately, the $40 billion estimatecustomers and partners. Fraud losses increase in losses does not include the expense ofcommunications carriers’ operating costs, combating fraud (manpower, systems, litigationnot only in the damage they cause, but in the and so on) and costs may be spread acrosscost of discovering and preventing them, and a number of departments so the costs arein working with law enforcement agencies to significantly higher, but again service providersattempt to resolve them. Despite increased were reticent to share details of their spendingknowledge and effort by service providers to on fraud-related activities.minimize fraud occurrences and related losses,perpetrators continue to ply their trade, abusing Future fraud: where do operators see thecommunications networks and services. opportunity for fraud occurring? As might be expected, in addition to beingSizing the problem: How much tactically focused on current fraud prevention,does fraud cost service providers? fraud professionals are vigilant and forward-It is difficult to accurately quantify fraud, looking in terms of the areas where fraud willas many service providers do not disclose occur in the future. In the near future, the mosttheir actual fraud-related losses. Nor do popular areas include:they necessarily discuss their investments,strategies, figures and plans for corrective PBX/voicemail fraud – the use ofmeasures. Most service providers we spoke compromised PBX systems to originatewith would not hazard a guess, but several put international calls;it between $30 and $50 billion per year. international revenue share fraud – inflation A few commented that it could be much of traffic terminating in internationalhigher because we “don’t know what we don’t locations;know” – in other words, there could possibly bypass fraud – unauthorized routing of trafficbe significant perpetration of fraud that has not to another service provider’s network, alsoyet been discovered – but most felt that with SIM boxing;leading service providers and law enforcement subscription fraud – use of communicationsorganizations vigilantly applying advanced tools services with no intent to pay for thoseto detect fraud, it is unlikely there is significant services;activity (at least globally) that has been credit card fraud – inappropriate/unlawful useundiscovered. of credit cards for payment or authorization; In order to assess the impact of fraud, the premium rate service fraud – inflationCommunications Fraud Control Association of traffic terminating to premium service(CFCA) conducted a Global Fraud Loss Survey providers.of 59 service providers in 2011. The CFCAestimates global fraud loss of $40.1 billion in Though many have put in place tools and2011, which is a 33 percent decrease from processes to combat these types of fraud.2008. The CFCA believes the reduction in loss Other more forward-looking individuals andis due to “increased effectiveness of anti-fraud experts have identified a number of potentialprograms within the industry and… increased increasing types of fraud as well, as servicecollaboration between anti-fraud professionals providers broaden their product and servicewithin the industry”. portfolios. Some of these include: Despite this, 98 percent of respondentsthought that global fraud losses had increased Wangiri/premium rate service fraud: Wangirior stayed the same and 89 percent believed (literally Japanese for ‘One (ring) and cut’)18 INSIGHTS RESEARCH www.tmforum.org
  19. 19. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.Attention from fraudsters will increase in all areasof mobile broadband technology and applications involves a computer using many phone lines sometimes referred to as pharming). to dial random mobile phone numbers. The Installation of viruses and other malware: calls and their related numbers appear as In addition to phishing, similar fraudulent missed calls on the recipients’ mobile phone. enticements through self-service or Assuming a legitimate call was dropped, fraudulent ‘offers’ could result in customers or perhaps due to simple curiosity, mobile being exposed to various types of malicious phone users call the numbers, which are software designed to damage devices, steal generally expensive premium rate services, information, track usage or deliver nuisance or replays of advertising messages. advertising. Content-related fraud: Several situations Mobile commerce fraud: New malware could occur here, with either the fraudulent could be developed to compromise handsets, selling of stolen or illegal premium content, allowing them to be used for fraudulent or the artificial inflation of content download financial or other transactions. charges from a third party. M2M devices are also subject to fraud. Often Identity theft/: Fraudsters may be able located in unprotected places, the devices to obtain enough details to assume a can be susceptible to SIM card theft. In false identity, initiating a variety of web addition, hacking of host controllers could transactions using facilities like messaging, significantly impact operation, as could social networking, financial transactions inadvertent intervention by field personnel. and subscription fraud. The damage here is Any of these sources could lead to significant largely limited by the imagination and the revenue losses for M2M operators amount of information obtainable. IP bypass: This would involve rerouting traffic It should not surprise readers that attention (such as VoIP traffic) onto an alternative from fraudsters will increase in all areas of carrier, robbing the intended termination mobile broadband technology and applications partner of intended traffic and revenues, over the coming years. The explosion of new and perhaps combining a PRS reroute. This technology, operating systems, applications might be combined with some IP spoofing – and usage will drive fraudsters toward mobile using false identity data to protect the fraud broadband, as will improvements in fraud perpetrator. management in more mature areas. Phishing: As interaction with customers In addition, the drive to bring new services through self-service facilities increases, this rapidly to market should be cognizant of the may offer an opportunity for perpetrators to fraud exposure created by these new services. gain private information such as identity data, Plans and procedures should quickly be put in financial data, or credit card data, among other place to protect the service provider and its things, or it may be used to re-route users stakeholders from excessive fraud-related loss to the perpetrator’s website (a technique or expense as the service grows.“The explosion of new technology, operating systems, applicationsand usage will drive fraudsters toward mobile broadband, as willimprovements in fraud management in more mature areas.”www.tmforum.org INSIGHTS RESEARCH 19
  20. 20. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.ENTERPRISE RISK MANAGEMENTPROTECTING PROFITS, KEEPING CUSTOMERS TM Forum’s fraud management activities The Fraud Management Group is run under the umbrella of TM Forum’s Revenue Management initiative and has a Collaboration Community that our members are most welcome to join to contribute to helping the industry tackle fraud – please see www.tmforum.org/FraudManagement for more information. If you would like to get involved in the Forum’s work on fraud (or any other aspect of revenue management or enterprise risk management) please contact Steve Cotton, Head of Revenue Management, via scotton@tmforum.org The first edition of the TM Forum’s Fraud Classification Guide has identified more than 80 types of fraud to provide consistency across the industry in how we characterize the threats – it is free for our members to download from here www.tmforum.org/GB954FraudClassification. The TM Forum Fraud Operation Management Guidebook Release 1.0 was published in May 2011 and is available free to members from www.tmforum.org/GB947FraudOperations. It outlines best practices drawn from the communications and other industries.How can service providers up their among service providers based on a numbergame in fraud management? of factors, the goal must be to attain adequateService providers have the opportunity to effectiveness at a reasonable cost. Policy areasreduce their fraud exposure, lower their fraud to be addressed, as indicated in TM Forum’smanagement costs, and perhaps gain some Fraud Operations Management Guide (GB947),additional customer trust. However, for many, include tool policy management, analysisthis will require significant upgrades in the and identification policies, fraud classificationfraud management strategies, practices, management, Internal process policies, lawprocesses and systems they deploy today, enforcement agency interaction policies,as well as an expanded view of fraud beyond external operator interaction policies, andthe core network services and infrastructure, internal ethics policies.up into the domains of devices, content and Service providers must develop and maintainapplications. As with credit and collections, strong anti-fraud operations, encompassingwith fraud management ‘an ounce of methods, processes and procedures for fraudprevention is worth a pound of cure’. detection, investigation and response. Again, Service providers need to approach fraud as outlined in GB947, this should includemanagement as a science and not an art. information and data processing (includingThey must develop and maintain a set of fraud rule processing, alert generation and alarmpolicies that enable efficient and effective fraud generation), fraud analysis (including alarmmanagement. This would include methods, assessment, alarm investigation, customerprocesses and procedures to detect, prevent contact, fraud determination, controls selectionand manage discovered fraud instances and implementation, and recording/reporting),within the service provider, and to manage and fraud action (including billing adjustments,resolution both internally and externally to the legal action or law enforcement agencyservice provider. While the approach may vary engagement, customer termination, staff20 INSIGHTS RESEARCH www.tmforum.org
  21. 21. Report prepared for Giorgio Grasso of Capgemini Service (TME-GSA). No unauthorised sharing.Service providers should develop plansto support their fraud operationsdismissal, process change or intentional non- modular, so the service provider can selectaction). only those components they need, but also Finally, service providers should develop modularity should allow for rapid incorporationplans to support their fraud operations in a of new capabilities as the service providers’variety of ways. As discussed in GB947, this business or threat environment changes. Thecould include: performing intelligence gathering tools must allow for rapid detection, but must(including external source information such as also be flexible enough to allow rapid additionlaw enforcement agencies, industry bodies and or modification of rules if necessary to suitother service providers, customer behavioral a particular scenario. They should allow foranalysis, customer contact, and ‘whistleblower’ profiling, including black lists and hot lists.management); implementing threat reduction In addition, they should be flexible enoughand avoidance measures (including propagation to accommodate the policies and operatingof black lists, staff vetting, customer education processes of the service provider. The toolsand risk reviews for current and anticipated should support strong security and data privacyenvironments); and, finally, managing system management to maintain integrity and supportconfigurations (including maintaining hot legal and regulatory requirements. They shouldlists for pattern analysis, black lists of known also support recording, logging and auditingfraudsters and detection rules and library functions and processes. Finally, the toolsconfigurations). should support best practices, and allow for In addition to procedures, service providers efficient, controlled interaction with externalshould have some clear criteria prepared as organizations such as other service providersthey seek tools for their fraud management and law enforcement agencies.needs. Fraud management tools must be While all this may seem a tall order, thesehighly scalable and adaptable, as they will need are just some of the capabilities necessaryto fit across a broad variety of situations and to fight the ever increasing threat of fraud.scenarios. Architecturally, the tools should be Forewarned is forearmed.“The explosion of new technology, operating systems, applicationsand usage will drive fraudsters toward mobile broadband, as willimprovements in fraud management in more mature areas.”www.tmforum.org INSIGHTS RESEARCH 21

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