Network costs that hurt the bottom line

Many land mobile radio network operators take great pride in sharing how well their networks are functioning from a financial perspective. They discuss the accuracy of how they account for all the network costs incurred. After taking this all in, I ask them about opportunity costs. “Never heard of it,” they say.

Opportunity costs are most easily defined as additional costs resulting from inefficient or sub-optimal practices involved in managing the wireless network. Opportunity costs have no boundaries, attacking a range of networks from single site to statewide.

Among the most prominent drivers of opportunity costs are inadequate equipment maintenance, a lack of strategic planning and poor training. The costs are manifested in equipment breaking down quicker than expected, users contacting the help desk on a more frequent basis or inappropriate network design decisions. Opportunity costs vary across networks.

Consider a large statewide network that charges users a monthly access fee for voice services. In this case study, the network management team has been so successful in recruiting users that they have been unable to load them onto the network in a timely fashion. This drives the user agency to consider using an alternative system; therefore, spending their money elsewhere. For those agencies that eventually join, the network manager loses monthly revenue streams for an extended period of time. This lost revenue is an opportunity cost of having poorly designed loading and programming functions.

A regional network I was recently working with had built out its network very quickly but did not develop policies and procedures commensurate with the speed of its buildout. This created a host of problems for the network management team, including:

• static and non-integrated asset management systems.
• site documentation that is not updated in a timely manner.
• frequency ownership and leasing data that is difficult to confirm.
• new users not being integrated into the system in a timely manner.

The overall lack of adequate documentation and delayed responses resulted in network personnel spending additional time on non-value-added tasks. These tasks involved spending too much time looking for information or providing inaccurate information, which created additional problems.

In this specific instance, the opportunity costs added an additional 10% to the network’s annual costs.

Local networks are not immune from opportunity costs, either. In one situation, opportunity costs were driven by the lack of network interoperability with neighboring communities and even within the community.

The overall additional costs incurred by the local agency equaled 20% of its overall network cost, an astounding amount for a small network, created by the inability to secure interoperability.

And these are not the only categories of opportunity costs.

Opportunity costs appear to be a systemic problem. Educating network managers about their existence and how to calculate them is a critical first step. Beyond the education process, network managers must be able to identify areas for improvement. There are several ways to do this, including:

• collect industry benchmarks.

• perform a rigorous total cost-of-ownership analysis.

• share best practices.

• identify outsourcing or out-tasking options.

• seek processes that can be automated.

Opportunity costs are a very curable problem. However, the first step in conquering the problem is understanding and identifying them.

Spencer Stern is a partner at Market Strategy Group. He has previously worked at Motorola and has extensive experience conducting interoperability and financial analyses involving land mobile radio networks.