The objective of cost management is to track and understand the resources and events (also referred to as “cost objects”) ­leading to cost generation, to accurately plan, budget and forecast resource and cost requirements for future periods, and to ­manage ­resource and cost in alignment with the revenue development. Thus, cost management fulfils three roles which make it a key function in any mature operator. It acts as a strategic provider of critical resource and cost information to other business functions. It also brings together all the information from the other business functions to provide future resource and cost requirements. And lastly, it acts as a controller for how and why cost is expensed.

To understand the resources and events leading to cost ­generation, cost management needs to shed light on the cost types (e.g. salaries, maintenance expense, depreciation), the cost behaviour (e.g. fixed, variable, direct, indirect), the reasons behind cost occurrences (e.g. due to the production of a particular service) and for what events (e.g. in a sales channels or tariff group).

Whilst the first part is relatively simple and part of basic accounting, the second part is more complex to achieve as more than 60% of a telecommunications operator’s costs are typically fixed and indirect and thus cannot be attributed to a cost object in a direct way (e.g. a service, tariff or sales channels). Instead, it is necessary to establish an allocation system and this is when problems start.

By nature, an allocation system is imperfect and therefore the validity of the results is often questioned. It is not uncommon for operators to spend an enormous amount of time identifying the best possible allocation system and covering the requests of all business partners in one single system. No doubt, the final concept for such an elaborate system then typically far exceeds the budget and time-to-implement requirements of any ­Finance organization and, at the same time, still does not satisfy the ­requests of all the business partners! Unfortunately, many operators divert to splitting up the gigantic task into sub tasks owned by a multitude of business functions resulting in a ­myriad of different costing systems. Once the task is divided up, ­every ­single cost owner tends to set up his own allocation system which calculates cost per event in very different ways. Naturally, it then becomes rather challenging to get a straightforward ­answer to a very simple business question, such as what is the cost to service client A under the assumption that capacity will grow by 50% or what is the price floor for service X?