Do management care about Revenue Leakage?

03 March 2016

A statement of the obvious? “If you know you're losing money, then surely you’ll want to collect it, and soon.”  However, in many walks of life, lethargy and fear of the unknown are significant barriers to action, and the same applies to Revenue Leakage.

In my experience, an energy supplier will be losing between 1% and 3% of revenue (although I have seen higher), with every pound found and collected going straight to the bottom line. So surely the case for investment is compelling, but still we see a lack of activity.  So why is this the case?  I see a number of factors that lead management to  act indecisively:

  • A ‘fatal flaw’ of human nature is that we’re trusting and on occasion we misplace our trust. An expensive billing system will generate the correct numbers, right? It will, but only if that system has been configured as expected, and as we now know, this doesn’t always happen, with potentially disastrous effects.
  • Addressing the root causes of leakage is hard. By nature, energy companies are complex organisations, with complex processes, making it difficultto identify the drivers of leakage. I don’t disagree, but this isn’t a reason to not try and often it proves to be an insurmountable barrier.
  • We operate in a dynamic industry, where change is the norm. Responding to that change in a commercial manner which meets the needs of the regulator is a key activity for management, and all too often takes priority over Back Office processes.
  • There’s no ownership of the issue. Whether it’s due to the ostrich syndrome (‘head in the sand’) or no single person being accountable for Revenue Leakage, there is often a lack of attention to the money that is literally being wasted on a day to day basis.

So what to do about it?

You can plough a lone furrow in your organisation, being the sole voice of reason shouting from the rooftops, but no matter how loud you shout it’s unlikely that you will make progress. To effectively address Revenue Leakage you need to bring the organisation together, embedding revenue assurance mechanisms within your processes and systems and reflecting that within the management tone.

Adhere to a few simple steps, and you will increase your chances of success hugely:

  • Quantify the issue – accurately. Knowing the size of the prize, and being able to assign some science to this number, helps to grab the organisation’s attention.
  • Ownership is key. Make a board member responsible for resolving leakage, and it will get the focus that it deserves.
  • Adopt an attitude of hyper-care. Until it’s embedded, this is not a Business As Usual activity, so build a project around it.
  • It’s a team game. Addressing leakage has to be a cross-functional activity which ultimately builds a stronger business. Operating as a single function will lead to failure.
  • Look for quick wins and celebrate success. By getting some ‘runs on the board’ early, you build momentum, and soon everyone will want to be part of a winning team.

I’m not saying that addressing Revenue Leakage is easy, because it isn’t. However, it becomes so much easier if you have a clear target, top-level sponsorship and the support of the Board.  In fact, without this, I would suggest you will set yourself up for failure, and nobody likes to fail.

In my follow up blog, out next Thursday, I’ll look at how to move your RA function up the maturity curve.

David Gandee, Partner

View Alan McCrae's profile




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