In a prior article, we addressed the value of optimizing accounts payable support areas for utility accounts. And we acknowledged that it’s not an area that generally gets much attention; it’s overshadowed by more front-and-center topics that drive most expense management discussions.
This blog post addresses how audit and optimization services – aided by artificial intelligence (AI) – can effectively drive savings in utility expense management. We will cover these two higher-profile expense management services that reside entirely on the other side of the spectrum from lower-profile accounts payable best practices, as valued as they may be when considering the expense management lifecycle.
Audit and optimization analyses get significant attention in expense management discovery sessions, and for a good reason: They are both direct drivers of savings for large enterprises. (Yes, money is always high on the priority list.)
Utility Expense Management Audit & Optimization Overview
Traditional TEM versus utility expense management are similar but distinct enterprise expense management support areas. For present purposes, it’s worth knowing that both are far more alike than different, with differences being more nuanced than material.
In other words, all the key concepts, methodologies, and approaches central to traditional TEM are just as important and relevant for utility expense management. Not all TEM vendors provide utility expense management services. But for those that have moved into this area, like Tellennium, the ability to adapt has been facilitated by the similarity of approach in centralized management and the use of technology.
Much of what is contained here should resonate with those who have read similar TEM articles on audit and optimization. Still, we feel it can’t hurt to take a few minutes to refresh and clarify the importance of these service areas because they are so highly sought after and inquired about. They are just as crucial for utility expense management as for traditional TEM.
Given its recent explosion in popularity and relevance to the expense management industry, we’ll also touch on the importance of artificial intelligence (AI) in this article. (Hint: It’s already being used by many companies, Tellennium included.)
Let’s detail how audit and optimization services provide material savings and value for large modern-day enterprises.
Audit Savings Expectations for Utility Expense Management
Approximately 80% of savings are derived from audit analyses. At the highest level, audits are focused on driving savings via identifying incorrect billing, which is what most people think of when thinking of an audit.
Services billed incorrectly are overwhelmingly overcharged, resulting in a dispute and eventually recovering savings for the organization. We refer to these as rate compliance audits.
However, there is another way that audits produce savings, and that comes from evaluating a service’s purpose. In this second case, if a service or billable charge cannot be verified to be properly aligned with a valid purpose, it may be disputed, and savings may be realized.
For example, if, say, disconnect orders were issued for various utility services, but the vendor (s) failed to disconnect said services and continued to bill for them, then the enterprise could dispute such charges and recover savings.
Or perhaps billable features that were not sought after or attached to any contractual provisions are discovered. In such a case, this would be disputable as well.
Over time, we have observed that 45% of audit savings are derived from these types of purpose analyses, while approximately 35% of recovered savings are derived from rate compliance disputes. This is based on our historical experience within the expense management industry.
Artificial Intelligence & Audits: It’s been around – in albeit more rudimentary forms – for approximately a decade.
The real power of AI is just starting to take off now. It will continue to accelerate technology capabilities at a pace exponentially we’ve never experienced before, but as noted, it’s already in widespread use.
For example, at Tellennium, we leverage real-time AI functionality that reconciles service usage with invoiced charges and correspondingly reconciles these charges to contract terms in a highly automated fashion.
The process may be overseen by highly skilled human personnel, but AI is a booster rocket to this key and core service. So, yes, it’s a big deal and will become even more significant as we move forward.
According to a recent Gartner study, CFOs continued to lean into digital transformation and embrace powerful technologies like AI, with 78% of CFOs either increasing or maintaining digital investments through 2023.
Translating the imminent changes that AI will bring to the industry and increases in audit savings are difficult to ascertain precisely. Still, as the data reveals, they are expected to be material over the next few years.
Optimization Savings Expectations for Utility Expense Management
Approximately 20% of savings are derived from optimization analyses: Optimization analyses pursue savings in a more forward-leaning way rather than the reactive manner of audits. The focus here is on assessing what utility vendors, plans, services, and features are truly needed to achieve operational utility needs objectives at the lowest cost.
This will often mean seriously considering switching vendors if a proper business case can be made that business objectives around utility service needs can be better served at lower costs. Again, optimization analyses focus on evaluating the current state of utility services and costs relative to the desired future state.
For example, we currently pay X amount to X utility vendor for X services. Our contract is coming up in 9 months, so are better options out there? Can we satisfy our utility needs at lower costs with a new vendor(s)? If so, what is the cost of migrating, and does the move(s) make sense?
This type of benchmarking analysis can often yield results by migrating to a more competitive vendor(s) or nudging any incumbent vendor into making its pending offer equally competitive.
Optimization can also occur within a particular vendor by moving to a cheaper service offering that still meets the enterprise’s utility needs. Each situation will vary greatly depending upon circumstances, but organizations that do the best here do two things:
1. They invest in planning around total utility lifecycle management
They manage their utility expense management program with a complete 360-degree expense management lifecycle approach. Yes, they continuously review and manage their current state of vendors, services, plans, et cetera. However, they also aggressively pay attention to their desired future state for utility needs and costs.
This takes vision and the discipline to think beyond the end of one’s expense management nose. Optimization savings can extend beyond the norm suggested here for organizations willing to invest and commit to this approach correctly, especially if the enterprise did not utilize experienced utility expense management support in the past.
2. They obtain experienced guidance from 3rd party utility expense management providers
This type of work can be complicated and labor-intensive. It’s worth doing, but to do it right most often requires assistance and guidance from an experienced 3rd party expense management provider.
For example, enterprises benefit tremendously from the power of a technology platform designed to house and parse all relevant utility data in the most impactful ways. They also benefit from extensive experience in expense management best practices and have deep benches of highly specialized subject-matter experts to oversee program management.
Some providers that only manage utilities can help. Some seasoned TEM providers also manage utility expenses and can provide experienced support (e.g., Tellennium).
The key takeaway is that optimization analyses performed well also add tremendous value to driving savings for your enterprise. It’s the other side of the savings coin, opposite to audit, and therefore rightly mentioned in the same breath.
Artificial Intelligence & Optimization: AI is already here and in use. The power of its algorithms to quickly assess trends and do comparative and predictive analysis will continue to explode exponentially for the foreseeable future.
It will be especially beneficial for optimization analyses because there are many more variables to consider than in more binary and straightforward rate or purpose audits. Skilled personnel will be highly empowered by the speed at which machine learning and technologies will accelerate the distillation of volumes of critical information into usable forms that can inform complicated business decisions much quicker than in the past.
The future is here. Organizations that will thrive forward will openly embrace AI.
Final Thoughts - Audit & Optimization for Utility Expense Management
There are a few key points that hopefully resonated in this article. First, audit and optimization analyses are the primary drivers of savings for enterprises with expense management programs, and utility expenses are now managed in much the same way that traditional telecom expenses have been since the mid-90s.
We also wanted to provide expectations around savings for these two utility expense management areas and make clear that – yes – artificial intelligence is also now a big part of this game.
Lastly, it should be noted that the utility/energy industry has pressure around adapting the best technologies quickly to drive optimization around energy usage.
This need may arguably be even more pronounced than in other industries given governmental pressures, et cetera; those within this industry will want to be especially mindful of the impact of current accelerating technologies such as artificial intelligence.
If you’d like to consider Tellennium in your utility expense management platform and vendor comparisons, contact us to schedule a brief demo of our solution.
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