The Anatomy of a Voice Call | Voice Mobility Technologies

Placing a call may seem very simple to us modern users of voice mobility. Remove the phone from your pocket, purse, automobile cup holder, or wherever you may keep your phone, find the name of the person you wish to call, and press the Send or Yes button to dial the caller. However, underneath that simple experience lies a vast wealth of technology, with electronic gears turning to produce a sound that not only sounds like a human, but is actually recognizable as the person on the other end of the phone, even if you are driving at 65 miles an hour down the interstate.

The voice call is made of a number of moving parts. Figure 1 illustrates the basic example.

Figure 1: The Anatomy of a Voice Call

Each handset contains all of the technology necessary to place a phone call. The phone must have a microphone to capture the voice call and a speaker to play out the audio from the other party. But beyond that, the phone must have a way of converting the analog voice information into encoded digital signals, using audio codecs with possible compression to ensure that high-fidelity voice quality can be carried over lower-bandwidth links. The phone must also have one or more wireless radios, complete with technology stacks and engines that allow the phone to connect to each of the networks, or even to hand off between the networks. These stacks must fully understand and adequately implement the necessary protocols to provide high voice quality over the network, something easy for voice-oriented technologies but much harder for data-oriented packet-switched networks. Finally, the phones must also support a rich telephony application. This application needs to look like, act like, and have the features of a common telephone, and yet, for voice mobility, must now often store the addresses and phone numbers of crucial contact information, provide access into the enterprise directories, allow for dialing as if in the office, and be manageable by network administrators. Many of these applications are not necessarily native to the phone itself, but created by third-party vendors to tie multiple telephone systems together to appear as one. The telephony applications must support all of the necessary protocols to create a phone call, set up the audio channels, and deal with advanced features such as voicemail and three-way calling.

The call itself is composed of two separate flows of information. The more obvious flow is what is known as the bearer channel. The bearer channel, a term borrowed fromIntegrated Services Digital Network (ISDN) technology, carries the voice of the callers. Looking back to analog telephones, there is only one channel, an analog audio channel that provides both the callers' voices and the necessary tones to tell the caller what to do. Dial tones, busy signals, and other beeps and clicks are used to communicate the number being dialed and the state of the call. In voice mobility networks, however, the audio is kept separate from the communication that is used to set up the call and keep it running. This is known as out-of-band signaling. Voice can be encoded in a variety of ways, and the bearer channel is more likely to be carried in a number of digital formats. The communication about what the phone call is for, how it is being set up, and what state it is in is encoded in the signaling channel. The signaling protocol is used to dial out to set up the call, provide feedback as to whether the other phone is ringing or busy, and to finally set up the bearer channel when the call goes through.

The signaling information needs to go somewhere, and that somewhere is to a telephone switch. For private telephone networks, where the handsets are maintained by the enterprise or organization who owns the network, these switches are also owned by the enterprise and are called private branch exchanges (PBX). The term exchange and switchare interchangeable, and these devices are the electronic equivalent of the old manual switchboard, creating connections between two calls. The PBX (or PBXs) for analog systems are proper switches, with internal analog phone lines that run from the handset directly into the PBX. But for Internet Protocol (IP)-based telephone networks, the PBX is more of the central call manager, providing for the list of extensions—users, basically, as well as the telephone numbers each user has—and the dialing plan—the notion of how to route calls based on the phone numbers dialed. PBXs also implement all of the advanced features of voice mobility calling, including voicemail, call forwarding, and multiple ring.

The PBXs define the internal voice network, but calls need to be able to be routed back onto the real, public telephone network, to allow calls in and out from the outside world. IP PBXs rely on a module or a separate device, known as a media gateway, which has the responsibility of converting the signaling and bearer traffic into a format and onto a wire that is provided by the telephone company. Media gateways thus bridge the inside world to the outside.

Let's get a better look at each component.

1 The People and Their Devices: Phones

Phones come in a number of shapes and sizes. Some have the latest features for consumers, such as music playing, video recording and camera functions, global positioning, and touch screens with tactile feedback. Some are designed for enterprise users, and have large screens, with strong email access and integration, spreadsheet and document editing capabilities, and large storage for use as a computer away from the laptop. Others are simple and rugged, meant for use in physically demanding environments where the phones need to withstand a beating. Some have nearly no buttons at all, and are even designed for nearly hands-free operation.

All in all, each phone may seem wildly different from the next. But, underneath, they are made of the same stuff: a microphone to pick up voice; a speaker to play it back; maybe another speaker for speakerphone operation or to play ringtones, so as not to deafen the user who happens to have accidentally hung up on a conversation and is being called back; some way to dial; some way to see or hear who is calling; a battery for mobility; and one or more radios to connect back to the network.

Within those components, the description becomes even more common. There is a digital sampler and a codec engine, to convert voice into digital data and back. There is a CPU somewhere, orchestrating everything, along with memory and some nonvolatile storage. The radios have antennas, all folded neatly into the small device. Voice operates the same on every one of these devices, and users will become just as irritated by poor audio quality as they will be pleased by good quality. The best voice mobility network is the one that users forget is even there, or is anything unique or special. They get out of the way, so to speak, and let the voice mobility user do her work.

2 The Separate Channels: Signaling and Bearer

In the analog telephone days, there was only one line per extension. This analog line has to do everything. It carries the voice, but it also has to ring the phone, send busy or dial tones, and handle the beeps corresponding to each button being pressed.

With digital phone calling, the signaling and bearer channels are separated. All the beeping, humming, and chirping that is meant to tell the caller what is going on with the call is removed from the audio stream and sent separately in the signaling channel. The bearer channel holds the human voice, and nothing else. The advantage of this having been done for IP-based voice mobility networks is that it allows the call setup part of the network to operate differently from the voice encoding and decoding part. IP PBXs may be configured to never carry a single voice packet, because their job is simply to figure out how to route calls—much like how Internet DNS servers are so critical in figuring out what"www.google.com" refers to without carrying a byte of Google's web traffic. Media gateways can be created that specialize in conversion of media formats, and then only need to implement the basic signaling protocols, and do not need to be concerned with advanced PBX features.

3 Dialing Plans and Digits: The Difference between Five- and Ten-Digit Dialing

For all the advancements in the digital age, with email accounts, instant-messaging handles, avatars, and what not, phones still work with the concept of dialing a series of numbers. But not all numbers are created alike. In the telephone network, someone needed to determine what all of the digits mean. This meaning is known as the dialing plan.

Think of the dialing plan as a series of simple rules that tell the phone system when you are done dialing and where the numbers are to go. In the United States, the dialing plan for our public telephone lines specifies that every phone number is seven digits long. Type an extra digit, and the phone ignores it. However, some calls are not in the same area code. This area code concept is a part of the dialing plan. To get to other blocks of phone numbers, outside of the block of numbers that you can dial the most conveniently, you need to dial a "1", followed by the area code, followed by the seven-digit number. Other calls require even more digits. An international call requires dialing "011" before the country code, and then whatever digits are necessary to place a call in that country. And the first "0" must be followed by the first "1" quickly enough to prevent the phone from thinking you are done, and connecting you to the operator. Finally, some calls, like "411", require only three digits. In the office, things can be a bit more complicated. Many people may have four-digit extensions. Only those four need to be dialed. Some companies may use longer extensions, however, with access codes in front of them. Finally, to dial out to the public network, you may need to dial a "9". But not just any "9" will do! The "9" must be followed by a pause, to let the system present a new, outside-world dial tone, where the rest of the digits can be placed.

The dialing plan defines all of this behavior. Every PBX system provides an incredible amount of depth into how these dialing plans can be created, and whether some of the digits are just part of the extension number and others are meant to shift the call over to another PBX somewhere else (like the "9" did to dial outside, but even the "1" for long distance does the same thing) to figure out the meaning.

A lot is mentioned about having four- or five-digit dialing within voice mobility networks. There is an added convenience, and it is true that users of a PBX may not remember the outside number corresponding to an extension, especially if the rest of the number is different for different extensions. (Picture a system in which the 6xxx extensions are reached from outside the office by dialing 487-6xxx, but the 7xxx extensions are reached by dialing 935-7XXX.)

4 Why PBXs: PBX Features

PBXs serve as a lot more than just the anchor or administrative server of the phone network. They also provide a long list of features that people have come to expect from enterprise phone lines—features that they probably do not have at home, even with today's rich cellphone feature sets.

PBX vendors compete with each other by making the feature set as useful and fancy as possible. There are a number of important PBX features. Some are listed here:

• Dial-by-name directory: A computer voice system that allows callers to find out an extension and dial it by interactively pressing a few buttons, usually the first portion of the name. This directory is driven by the autoattendant feature.
• Autoattendant: The automated telephone operator, represented by a series of recorded prompts. Autoattendants allow users to access and even manage their account on the PBX simply by calling in. Autoattendants are also the anchor for the interactive voice response systems that outside callers might get into a call center line, whose PBX is advanced enough to guide callers through the menu of options.
• Call forwarding: The user can set the line up to forward to another extension, or an outside line, rather than ring the phone. This is useful for when the user is out of the office. Call forwarding is also done automatically when the user does not answer the phone after a certain number of rings.
• Find-me/Follow-me/Hunting: These three names for broadly the same feature allow the user to have a number of different alternative phone numbers. When the user does not answer his or her primary line after a certain number of rings, the system hunts down the list, forwarding the call to the next number until it gives up.
• Simultaneous ring: Instead of hunting through a series of numbers, the PBX can call out to each of them at once. The first one to answer gets the incoming call. This is useful when the user has a desk phone and a mobile phone, or multiple other phones, and might be at any of them.
• Call transferring: Allows the user to send the answered phone call to another phone.
• Call park: Allows the call that is already in place to be placed on hold and transferred to another extension, where the user can remove the call from hold. Unlike call transferring, which would ring the other phone and cause the user to have to run until voicemail picks up, call parking allows the user to take more time.
• Call pickup: Allows a user to answer another user's phone when it is ringing by entering their extension number. It can also be used in the same sense as simultaneous ringing can, in that an incoming call to a department might ring multiple extensions, and the first to pick it up wins.
• Do-not-disturb: Rejects the call before it rings the phone, usually sending it to voicemail or back to whomever transferred the call. Similarly, a user can often use this feature manually on an incoming call by pressing a button on the phone to terminate the incoming call and bounce it back.
• Voicemail: Answers the phone and records a message.
• Hold music: PBXs provide a series of options and selections for the caller to be subjected to while on hold. For some unknown reason, even advanced PBXs often play a short, few-second-long segment of supposedly relaxing music in an endless loop. Administrators can, however, often replace the hold music with a prerecorded selection. This is most useful for queuing of calls in call centers, where the hold music might be interspersed with the autoattendant informing the caller of the expected wait time.
• Time-based policies: PBXs can change their configuration based on the time of day, routing calls to the autoattendant instead of the corporate operator, for example, after hours.
• Conference calling: PBXs can join together a limited number of lines for ad hoc conferences, such as three-way calling, for which multiple parties are needed to be on at once.

As you can see, PBXs are designed to have a broad series of functions. Thankfully, PBX features are generally independent of voice mobility networking, in the sense that every PBX has a good number of features, and these features will generally work on IP PBXs, no matter what IP-based protocol the user is using. On the other hand, fixed-mobile convergence (FMC) solutions and PBXs do interact

Technology Forecasting and Strategic Planning

During the weeks before the Cuban missile crisis in 1962, there were many meetings of the National Security Council. The story made the rounds of the staff and later appeared in print about one of the meetings that took place just before the situation was made public. General Curtis LeMay, a high-ranking Air Force officer previously in attendance, was missing. One of the President’s aides was concerned and asked, ‘‘Where’s General LeMay?’’ The President ignored the aide and continued with his opening remarks, but after a minute or so, believing the General’s presence to be critically important, the aide persisted with an interruption: ‘‘Excuse me, Mr. President, General LeMay isn’t here, shouldn’t we wait for him?’’ At this point Kennedy is said to have stopped, removed his glasses, looked straight at the aide, and said, ‘‘No. We don’t want him here. We’re here to decide whether or not we want to bomb Cuba. If we decide we want to bomb Cuba, we’ll put Curtis in the lead airplane, but we don’t want him helping us make that decision.’’ This story is sometimes used to illustrate the difference between strategy and tactics. The strategy involved deciding what to do. However it’s likely the act of excluding the General was a tactic aimed a keeping minds open and forcing a war council to consider one or more alternatives and forge a strategy or two to get the missiles removed from the Caribbean island.

In the late 1960s, the Radio Corporation of America changed its corporate name to simply RCA and went on an acquisition spree buying Cornet Carpets, Banquet Foods, and Hertz Enterprises. Many saw this jokingly as changing the meaning of the company name to ‘‘rugs, chickens, and automobiles.’’ Later, after struggling for several years to compete with IBM in mainframe computer design and manufacturing, the company decided to exit the business. After the decision was finally made and formally announced, an observer noted, ‘‘Strategic planning at RCA consisted solely of deciding what to do after lunch.’’

CONTEXT OF TECHNOLOGY FORECASTING AND STRATEGIC PLANNING

Why should something like technology forecasting and long-range strategic planning be part of communications (cost) management? Because communications is the lifeblood of any organization, and if the blood gets clogged, slows down, or stops, the organization will cease to exist. Technological forecasting and long-range planning assures that communications capabilities and facilities continue to change and evolve to meet the needs of a growing organization operating in an environment subject to change brought on by competitive pressure and regulatory and technological change.

Technology forecasting and strategic planning should be considered in the broader context of the organization’s mission and objectives. It should deal with all fundamental requirements of the organization, such as revenue producing products and/or services structure, human and capital resources, physical facilities, and utilities. This chapter introduces the concept of long-range strategic business planning, explains how to do communications technology and long-range planning, and its use in the overall plan.

Long-Range Strategic Planning

Does your organization have a long-range business plan, also called long-range strategic plan, or simply just a strategic plan? Have you seen it? If the answer to both questions is yes, consider your good fortune in the sense that most companies don’t have a long-range plan, let alone a technology plan. Much like the story about RCA, they worry about what to after lunch, eventually getting bought up, or taken over by another organization. Others take forever to get an annual budget prepared and agreed to by their banks and other lenders whose primary interest is that they receive each month’s interest payment on the money the company owes, not on the company’s product and service revenue, gross margin, and net income.

If your organization does not have a long-range plan, regardless of the nature and character of the annual business plan or operating budget, you are in a good position to learn while doing something valuable. If your colleagues and management do not appreciate the effort, you will be in a position to benefit your next employer when your current organization experiences its premature demise. The best place to start is with your organization’s annual business plan and budget, 

BUDGETING AND PLANNING FORMS AND PRACTICES

If you’re an experienced budgeting and planning practitioner, it’s likely you use a system that has evolved from a combination of learning by doing and classroom training. However, it seems logical that we should be able to construct a system by simply incrementing it with forward-looking details and minor caption changes.

If we hang on to the intuition to take history and project it into the future, it should be possible to create a foundation from which to make changes and iterate results until we arrive at a point where we have the following:

• Departmental expense budget for communications cost management (CCM)
• Fixed asset account, capital budget, and revised depreciation schedule

Now that we have determined where we want to go, the issue and focus is on how to get there. Experienced budget crunchers have come to learn that once a year, somewhere out of the blue comes a set of instructions and assumptions to prepare the budget. And thereupon begins an annual ritual akin to something between a Mexican hat dance and an Indian snake charmer festival. Typically, the only thing constant, clear, and repetitive is ‘‘don’t spend any more than we have to,’’ or ‘‘cut capital spending by 25%.’’

Well-run, successful organizations breeze through the cycle and complete the annual business plan and budgeting with aplomb akin to a well-run ballet troupe. Why and how do they do this? Simple:

• They have a common-sense, well-adapted internal reporting and forecasting process
• They get management direction in the form of two or three alternative growth scenarios for the next year
• They use clear and simple assumptions regarding availability and use of headcount and capital
• They operate on a no-fear, no-cut, schedule with dates and deadlines for actions by key players

Before undertaking budgeting and planning work, it may help to explain a little more about what’s been going on during the current year so far. Earlier there was a mention of timing of the budgeting and financial planning process. Figure 1 shows key elements and timing with respect to the annual business plan.

 

Figure 1: Financial Reporting Planning Activities and Time Line

Basically, there are four activities taking place during the course of an operational year, sometimes called fiscal year. The well-managed organization begins the year with an approved budget and business plan. Throughout the year, operating results are recorded and reported on internally and externally. Even though the plan is fixed and doesn’t change, operations and results will vary because of several reasons. Moreover, the organization that doesn’t change its way of operating during the course of the year isn’t long-lived. At the root of change is the forecast activity. Properly carried out, forecasting is a powerful tool for driving annual operating and strategic business plans.

Assumptions and Growth Scenarios

First of all, let’s assume for purposes of the exercise, that we are on the receiving end of the assumptions and scenarios. The effort will involve:

• Responding to the request for a plan and budget
• Preparing a budget for the communications cost management function
• Supporting all other departments with communications expertise in the preparation of their operating and capital budgets.

Here are the assumptions provided each department:

• General economic growth remains sluggish to a point or two on the upside
• Industry segment growth: 3% overall
• Inflation between 3% and 4%
• Business growth in accordance with long-range strategic plan
• Delay replacement equipment capital from first to second quarter
• Delay expansion capital from second to third quarter
• Revenue growth: 5% per quarter, 15% year-to-year
• Net income growth: 6% per quarter, 20% year-to-year
• Short term interest rates: remain under 5%
• Cost of capital: 10%
• Headcount additions limited to vacancies in existing positions; incremental revenue; operating cost reduction projects (contractor, until proved out) and capacity growth.

Growth scenarios:

• Expand regional programming from one currently to two or three areas.

One of the more often ill-practiced parts of business planning is making a plan-for-a-plan, complete with dates and deadlines. This is senior management responsibility. But if it isn’t practiced well, and you’re the communications manager that has to live with the situation, you can make your own plan and deadlines and benefit from such action. Table 1 shows an example of how to lay out an overall schedule and plan.

TABLE 1

Step	Start Date	Deadline
Management issues guidelines and assumptions; requests draft plans	August 1	September 1
Management review cycle	September 1	October 1
Revision and negotiation	October 1	November 1
Prepare final plan	November 1	December 1
Final approval cycle	December 1	December 15
Distribute plan	December 15	December 31

Budgeting and Business Plan Schedule

In addition to the information above, each department manager has been provided with current financial summaries and first draft expense and capital budget forms or spreadsheets to use in developing the first draft submission.

COMMUNICATIONS BUDGET AND PLAN STRUCTURE

An organization’s annual business plan consists of several components, not just budgets. The purpose of a business plan is to set out goals and objectives—with great focus on financial targets the organization hopes to achieve in the coming year. Typical practice is to begin working on next year’s business plan and budget in the midto late third quarter of the fiscal year. For organizations operating concurrent fiscal and calendar years, school, and budgeting start around the same time. Usually the business plan and budget goes to the board or owner in December. Well-laid plans get approved; lousy plans become the root of contention and revision during the holiday season. Most organizations don’t enter a new fiscal year without a board-approved operating plan for the next year.

Communications budgeting and planning involves only the expense and asset accounts in the system. This is the time and place to get new inputs into budgeting and operating practices, as well as organize new parameters in operating and capital expenditures. Regardless of reporting structure, it is strongly recommended that communications cost management be accounted for as a departmental peer to other operating functions such as sales, marketing, accounting, management information systems/information technology (MIS/IT), etc. Alternatively, it can be part of MIS/IT if all subaccounts are properly structured and their entries classified appropriately. But care must be taken to keep the two separated and well defined, because of the potential for, and sometimes outright, duplication of resources or empire building. Missing an opportunity to acquire a new operational capability is also possible as well. This is the syndrome known as the left hand not knowing what the right hand is doing.

Good budgeting and planning practice uses previous years’ actual results as a foundation on which to build the next year’s plan. Overall, the process involves studying and understanding previous years’ history, followed by development and analysis of alternative scenarios. Reports of actual expenditures by category, department, and location covering the past year are the critical starting point. These reports should come from accounting on a regular monthly basis.

Excellence in budgeting and planning practice dovetails with and leverages successful long-range business and strategic planning. Gaining a detailed understanding of the content of goods and services making up the numbers may require examination and study of the invoices and contracts that caused the numbers. This is the area where communications subject matter expertise can greatly enhance clarity and meaning with respect to cause and effect of capital and operating expenditures, really purchasing decisions, on individual departments as well as the overall operations of the enterprise. It is important to determine the value of each and every spending transaction. What is the result of providing every single employee with a telephone? What would happen if they didn’t have a telephone, or if they had to share a telephone with another person? Managers in all departments with responsibility need to evaluate and consider the work content of each and every employee. What is their input and output; how much is dependent on 24/7 availability of a telephone for incoming and outgoing calls? The same questions should be asked about their computers, LAN usage, pagers, mobile phones, and other gadgets. Not that they aren’t valuable, but it’s a simple matter of understanding how valuable. And if the value is real, is it being applied to, or used by, all appropriate headcount?

Capital spending should be scrutinized as well. Look at the previous 2 or 3 years of capital spending. What was the cost of each component in the spending package? What was the expected result? Capital spending should either result in savings or profitable revenue growth, preferably both if possible. What was the promised return compared to reality today? Get numbers, because you will (or should be) asked. If you’re not asked, then you should update your resume and watch for an opportunity to move to a job where management asks before you’re forced to because the management you work for might not get supervised by the bank or board before the business isn’t a business any longer.

The budget is only one part of an overall communications plan. Depending on the way the enterprise is organized and conducts its accounting practices, communications budgets, and operating activities may be centralized or decentralized. They may be wholly an internal function or completely outsourced. In reality, it’s highly likely somewhere in between the two extremes and a mix of both. Other key parts of the plan include people and vendor or supplier resources. Communications expense and capital expenditures are significant dollar amounts. We know from experience that opportunities for significant one-time and ongoing savings exist. It is not unusual to realize 8% to 10%, or even 15%, favorable impact on pre-tax profit. Budgeting and financial planning time is the time to create a plan to realize those savings.

In addition to impacting the cost of communications directly, budgeting and financial planning provide opportunities to impact the organizations overall growth rate and the competitive and strategic position in the marketplace. Creation of a website with adequate, but not oversized communications network access and just the right amount of advertising and promotion can be just the ticket for a newly created product or service offering. Expansion of customer support with a new call center located in an area where labor cost is lower is a no-brainer. But structuring the design of the communications network and system required to support scalable growth over a 2-, 3-, or 5-year period requires knowledge of communications technology and commercial products and services to design, build, and operate in a way that enables and does not constrain growth. Competent communications budgeting and planning supports the department with direct responsibility to determine and plan the website. The responsible department describes what they want in the way of capabilities and results; communications management designs the facility and prepares a detailed operating and capital project plan, including budgets for both.

A Better Way to Report on Communications Cost Management

Typical though it may be and grounded in past practice when telephone service was only available from one source like water and power, just paying the telephone bill is far from adequate for effective communications cost management, now and in the future. However, it’s a good start and it’s not difficult to make incremental improvements over a reasonable time. At a high level, here’s what’s needed:

• Telephone expense needs to be accounted for in more detailed ways by purchasing and paying for all items of goods and services followed by coding and entry into the accounting system to drive expense reporting categories built around voice, data, paging, Internet access and function specific circuits, equipment, facilities and services such as two-way radio, paging, wireless network access, satellite transponders, and other items that find their way in haphazard fashion into the telephone expense subaccount. Once the basic capability to code, classify, and record the expenses in individual accounts, it’s highly likely the reporting side of the system will report in more detail.
• A second, or similar, version of the same form showing total telephone services expense, by department and location. This can provide the communications manager and corporate executives with a clear picture of the level of spending for each category of services across the organization’s sphere of operations.
• Addition of an asset category or list of all items of equipment driving depreciation accounts included in the expense summaries, by department or cost center, by location. This information should be equally available and apparent to anyone charged with budgeting, planning, and managing communications cost. Managing the cost of communications is not just paying the telephone bill anymore. It requires capital expenditure, and typically involves consultants and contractors. Moreover, there are strategic implications where call centers and Internet websites sell directly, or support customers.
• Separate administrative equipment and application specific or functional equipment. For example, if a real communications cost management department exists, its administrative equipment and software assets should be budgeted and reported separately from common communications equipment such as voice switches, routers, data switches, network interface devices, local area network (LAN) equipment, etc. This extends to news and other program centric production operations and facilities where communications circuits, equipment, facilities, and services are used to transport content.
• Depreciation expense should be derived from the asset category and given the same classification as basic communications expenses, broken out by voice, data, Internet access, and functional subcategories.
• Break out of maintenance contracts for software and hardware.

Before launching off into the budgeting and planning waters, let’s step back and make a point or two about what has been described and restate the importance of recording communications expenses and assets with sufficient clarity, and detail so they are clear and presentable to the executive bearing responsibility for making sure the organizations money is spent wisely and recorded properly.

Many organizations spend significantly more money than they should for communications equipment and services. Potential savings can range into the tens of millions of dollars or the order of 10% of earnings for the average Fortune 500 company each year. Most executives don’t like to hear this; they want to believe they have the best accounting and purchasing available. Others rely on outsourcing solutions or consultants working for contingency fees. Regardless of approach and level of success achieved, it is prudent to examine and review the organizations communications cost management process and practices. Properly conducted, it will ensure accurate, valid, proper accounting for and expenditure of the organization’s money.

Ideally, there are two versions of the departmental expenses summary. One is reality-based—accounting history—and the other is forward-looking—the approved budget. The rest of this chapter is devoted to describing each and how to build and use both of them to manage communications cost and effectiveness. First we will describe and define the ideal reports, then go into how to use them to get through the budgeting and planning process every organization goes through on an annual basis.

ACCOUNTING SYSTEM | Budgeting and Financial Planning

The foundation of each organization’s accounting system is a chart of accounts. This is a name and number system whereby each account has unique identification in the form of a name and number. If a particular department has accounts in more than one physical location, this becomes part of the structure as well. Accounting systems are built around five categories of accounts, assets, liabilities, equity, revenues, and expenses. Table 1 explains a little about each.

TABLE 1

Assets (1000)	Items of value owned. Examples include cash, inventory, and land. Assets are usually tangible, but not always.
Liabilities (2000)	Debts. Examples include loans and taxes owed. These debts are usually settled by cash payment, but sometimes they are settled by providing a good or service at a later date
Equity (3000)	Equity represents the owners’ interest in the company. Equity accounts include common stock and retained earnings or profits reinvested in the business, as opposed to profits distributed to stockholders as dividends
Revenues (4000)	Revenue Increases assets when the organizations output is sold or exchanged for money or otherwise valuable goods and/or services. Examples include sales of equipment, merchandise, or voice and data communications, and any interest earned from investments.
Expenses (6000)	Expenses decrease assets or increase liabilities when goods and services are acquired and used to fulfill orders and serve customers. There may be literally hundreds of expense categories such as salaries, rent, utilities, advertising, voice and data communications services, taxes, fees, subscriptions to publications, and memberships

Within each of these categories are subaccounts used to classify each entry or transaction. If the organization does business or maintains a presence with resources—people, address, buildings, telephone number, etc.—in more than one location, the system will also have location information in the form of a name and number. Understanding this structure is vital to successful management practice in any mid-size or large organization. Communications circuits, equipment facilities, and service are as vital to organizational function as space, heating, air conditioning, ventilation, power, water, and rapidly becoming more vital than postage. Communications is not just paying the telephone bill anymore. Where there was, and still is in most cases, a simple single line on in the expense category there should now be at least three, and perhaps four, for each department or cost center requiring use of communications in its operation.

Communications equipment and other assets are accounted for in the asset category. Communications operating expense is accounted for in the expenses category. Accounting for anything to do with communications in the other categories is highly unlikely. If you are, have been, or expect to be given responsibility to manage a department or cost center, you have or will receive monthly summaries of expenses your department incurs. You may or should also know or be aware of investment in or spending for equipment and other assets required for proper operation of the department(s) you’re responsible for and that produce the monthly expense summary or summaries. One of the items in the expense summary is depreciation. This is the result of writing off or expensing the value of the asset against revenue over a period of time. It has the effect of reducing taxes and increasing the amount of cash kept from the revenue stream after all other costs are absorbed during each accounting period.

Spending the organization’s money begins outside the accounting system when a commitment in the form of a purchase order or proposal acceptance is made. To this day, many organizations still place verbal orders for telephone service. But now even the telephone companies are catching on and it’s possible to use their website to place an order for service. Many have had customer order entry systems in place for several years for large accounts. Sooner or later these verbal or computer-based order entry systems cause service delivery and subsequent invoices that are paid and, in most cases, classified by someone in the organization so it fits into the single telephone expenses category.

The expenses category of the accounting system tends to mirror the organizational reporting and management structure. Look at any particular location from headquarters to remote sales offices or stand-alone call centers. What you will see is someone, somewhere in the organization, appointed to be responsible for all expenses incurred during the course of operations at each and every location. Another connection between the system and the organization is in the revenue category and the sales department. Stop and think about it: Is your organization using a website to attract prospective customers and then enabling them to place orders? Where’s the sales representative in this picture? The revenue category in the accounting system must be capturing the revenue numbers somehow, somewhere. What does it take to get the expense category to capture the cost of the Internet access facility?

Depending on the size and number of accounts, larger organizations will have additional subaccounts in a hierarchy of sorts that tends to mirror organizational reporting structure and management chain. For example, revenues would look a lot like the sales and marketing organization. Certain parts of the asset accounts would match production or manufacturing organizations where inventory or facilities churn and change on a daily basis as products shipped undergo the billing process. In communications service provider organizations, the equivalent to production is network operations where facilities are used to support the organization’s service delivery.

The Account Numbering System

The structure of the monthly reporting system is built around unique identifiers for the account and subaccounts in the accounting system’s chart of accounts. At the small end of the scale is the entity that keeps track of its accounting affairs in each of the unique categories: assets, liabilities, equity, revenues, and expenses. At the other end of the spectrum is the large entity with many departments and operational functions located in many locations. At the smaller end of the spectrum are organizations that can easily use two- or three-digit series numbers while the large organization will require three-, four-, or even five-digit account numbers. The same is true for department and location numbers. The key point is to architect the system so that it is expandable and scalable beyond foreseeable growth, while at the same time keeping memory, storage, and processing complexity reasonable.

In addition to the chart of accounts, most modern computer-based accounting systems include, and won’t operate properly without, unique departmental identification and location information. For example, the payroll part of the accounting system needs to know which department to allocate payroll expense to, in addition to knowing which employees reside in cities and states with payroll and income taxes.

The combination of account and subaccount identification, department name and number, and location name and number are the basis for communications expenses and capital investment in our mythical organization’s budgeting and financial planning examples and practices.

INTERNAL REPORTING

The typical enterprise runs on internal monthly reporting of actual results recorded in accounting journals and ledgers. This information is then compared to budget and as the year progresses, a current forecast for future periods. Some organizations use what’s referred to as a rolling forecast, whereby future quarters and year end coinciding with the annual report is forecast. The rolling forecast is sometimes used to bridge the annual business plan to a long-range strategic plan that picks up from the current year and may cover 3 or more years into the future.

Practices and management style determine how this information is presented and reviewed; however, it’s not unusual for an enterprise to detail out an accounting calendar with specific dates each month for a preliminary trial balance, usually within 3 to 5 days of the end of the month, followed by a period of 2 to 3 days for adjustments, and final closing within 10 days after the end of the month. Another common practice is full-fledged senior management reviews shortly after the end-of-month close. This allows release of quarterly results within 30 days of the close of each quarter.

So-called mid-month reviews are supplemented with reviews matching payroll periods. Biweekly or weekly operating results at lower levels in the organization become the time where line management focuses on results measured by orders received (bookings), shipments or installs (billings), orders placed (purchase commitments), and headcount changes (hires and terminations).

Accounting and treasury operations monitor payables, receivables, and cash position on a daily basis, and make decisions about exactly which bills to pay, taking several factors into account each day. Why should a communications manager worry about these issues? Wait until the daily or weekly executive conference call has an echo problem, or security breach, or there aren’t enough ports—no, you really don’t want to wait, you want to know the calls occur, and you want to know how long they typically last and you want to know if everything works OK, or you want to be in a position to have installed another four or eight ports just before they are needed. As the individual responsible for all communications circuits, equipment, facilities, and services, you need to know about key operating and strategic actions being contemplated and taken. Be aware though that these discussions are highly sensitive and, valuable as they may be, you may not always be invited, or privy to, all decisions until you’re instructed to take action or asked to advise on a situation.