What is Cost Containment?

I’ve been banging on now for a couple weeks about using Cost Containment to advance your career. But what exactly is Cost Containment? Is it as simple as spending less money? Must essential services be foregone; customer-pleasing amenities eliminated?

what-is-cost-containmentCost Containment is about providing similar services more cheaply, or additional services for roughly the same amount. Broadly speaking, there are 4 categories of Cost Containment.

  • Technology
  • Architecture
  • Negotiation
  • Negative Expenses

We will discuss these categories one by one to better understand how they can work for your network.

Technology

Generally, replacing an older service or equipment with more modern kit falls into this category. Purchasing new equipment is a Capital cost, which means this kind of project must be considered far in advance when planning the budget for the next year. The long lead time and Capital cost mean the project should realize a significant cost improvement.

This kind of approach is common enough that it may be worthwhile to think of it a bit abstractly. In general, the formula for this to replace OpEx with CapEx.  In other words, buy new equipment with a Capital expenditure, and the new kit has a lower Operating cost than that it replaces.  Think CapEx for OpEx.  This may be appropriate when the business is measured by EBITDA.

Examples of technology Cost Containment include:

  • aggregating many into few, such as multiple T1/E1s into DS3/E3;
  • higher-capacity fiber mixes;
  • a new application server which replaces multiple older servers.

Don’t be afraid to ask your Finance and Accounting people about this kind of project. Not only will they be happy to explain, it will please them that a techie (that would be you) takes interest in the money side of the business. Pay close attention as they explain, and continue asking questions. If you can get your head around the money, your Cost Containment proposals are more likely to receive a fair hearing.

Architecture

Architectural improvements offer a better, cheaper way of something you are already doing, a service you already provide. The best way to explain this is with examples.

  • Replacing a bunch of physical servers with a private cloud or virtualization environment. (“Private Cloud” is easier to say and to type. It has the benefit of being more buzz-word compliant, too.)
  • Migrating from circuit-switched to packet-switched (VoIP) for voice interconnect.
  • Replace a proprietary, complicated and fragile client-middleware-server application with an open source, web-based, SOAP/XML solution.

You might ask aren’t these examples of Technology projects, too? After all, these examples would also incur Capital costs. But don’t get too hung up on the categories. They are useful to refer to a group of Cost Containment projects and can help you to simplify for your audience what can be pretty complicated topics.

Negotiation

Learning to negotiate well is one of the most important tools you can put into your toolkit. I suggest finding a book or a course to get you started. Between people, almost everything is a negotiation, from getting the kids to school on time, deciding where to have lunch, the terms for a new job. You probably negotiate many times every day with many people.  The more comfortable you are negotiating, the better you are likely to do it.

Cost Containment also can be achieved through negotiation. Whether for a new service or extending an existing service, contracts are meant for negotiating. Never accept if you are told it is a contact is standard and cannot be changed. If those words are spoken, pretend you didn’t hear. Always try to negotiate better terms for yourself and your company.

Whole bookshelves have been filled with advice for negotiating. So I’ll only make one suggestion. When it is near time to renegotiate an existing contract, do a bit of homework.

  • Collect from your network the key metrics upon which the current contract is based.
  • Then identify the number one competitor to your current service provider.
  • Contact the competitor, tell them the current contract is almost ended, and ask the sales representative if she is interested in taking away your business from the competitor. The answer, of course, will be yes.
  • Have both parties sign a Non-Disclosure Agreement, NDA.
  • Share your metrics, and have that sales rep propose a budgetary quote.

That budgetary quote should tell you approximately how much the new contract ought to cost, which will make you a better negotiator with your current service provider.  Good things are bound to happen.

Negative Expenses

This category, I don’t know if there is a better term for it. By “negative expenses” I mean to collect money for things they are presently a cost to the business. This category covers services and functions of your network that might be sold to others.  Examples may be the best way to describe this category:

  • Lease to competitors space for their antennas on your telecoms towers.  Right now each tower probably has a lease cost.  Rent, in other words.  The cost of rent can be offset by payments from the competitor using your tower space.  I call the offset a negative expense.
  • Allow the subscribers of your competitors to roam onto your network, or alternatively, lease outright idle spectrum to the competitor.  If your network has idle capacity, and if you can charge the competitor a higher wholesale price than your Cost of Goods Sold (COGS) or Cost of Service (COS), this arrangement might make sense.
  • Carry competitor’s traffic on your fiber backbone.  Again, if you’ve idle capacity in your network, this approach can monetize that unused capacity.

Any projects in this category will stimulate discussions, both within the technology team and in other departments. Put forth your best ideas and listen carefully when an idea is rejected, it will teach you well. Ideas like these are a bit “out-of-the-box”, and will have your name as well as your ideas on many people’s lips.This is mostly a Good Thing.

If you want more examples of Cost Containment projects to feed your own ideas, signup for my newsletter and receive a list of 50 Ways for Telecoms to Cut Costs.

50 Ways for Telecoms to Cut Costs

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