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Benchmarking can be an effective management tool for establishing or improving performance standards and identifying opportunities for improving productivity, quality, operational efficiency and reducing costs. There are two major types of benchmarking used in the energy industry today to effectively analyze Customer Care and Billing (CC&B). These types of benchmarks are operational and fair market value price comparisons.

Operational benchmarking is typically used when services are not outsourced. Therefore, operational benchmarking analysis focuses on labor costs and direct expenses. Utility and energy companies analyze cost, productivity, and performance of business processes at a transactional level.

The reason operational benchmarking focuses on the transaction level data is that the information about cost, productivity, and performance quality at the granular level allows business process key personnel to better manage making the changes required to make improvements identified in the results. Performance management programs such as the Balanced Scorecard provide tools that allow operations managers to focus on reducing Operations and Maintenance (O&M) costs or improving process quality. Managers can use operational benchmarking to identify gaps in cost or quality performance and prioritize actions targeted at removing those gaps.

Benchmarking conducted for the purpose of determining FMV pricing of Customer Service Outsourcing (CSO) differs from operational benchmarking. Price benchmarking takes into account the value that markets place on services rendered relative to the prices charged for those services (CC&B). Price benchmarking requires keen consideration of total price to service as well as all contributing components of that price for the services and service levels delivered. And since benchmarking hinges on comparable metrics to draw conclusions, precise normalization of price and services is critical to a balanced assessment of FMV pricing.

Fair Market Value Price benchmarks are used to render conclusions regarding the competitiveness of an outsourcer's pricing relative to the services provided at service levels. Value and price are determined by the market for these services and are captured and tracked by benchmarkers, such as UtiliPoint, through the development of databases, and reference groups selected for particular benchmarks.

Benchmarking of pricing and service levels requires normalization in order to determine the fair market value for each reference group company. Then the prices of the reference group are averaged and compared with the price being benchmarked. By comparing the pricing and services of one company against similar companies selected to be part of the reference group, conclusions can be drawn regarding the fair market value of the outsourcers pricing relative to the pricing charged for similar services and value by other companies.

The following compares the differences between benchmarking for process improvements and operational excellence, and benchmarking for determining fair market value pricing of an outsourcing agreement.

When using fair market value price benchmarking, the following should be considered when selecting reference group companies:

Customer care and billing services of the energy company are outsourced
Outsource agreement includes the same or similar services described in the MSA
Outsourcer is exposed to the same or similar risk and liability
Service a similar number of accounts with a similar profile of types of accounts (i.e. all residential or similar distribution of residential and C&I)
Similar corporate profiles (outsourcer profiles similar in size, specialty and approach; energy or utility company profiles similar in size, market type, commodity)

It is not appropriate to include outsource contract bids or non-binding quotes of prospective outsource pricing when determining fair market value. Fair market value pricing must be determined based on the signed and effective MSA in place for the outsourcing services. Using MSA pricing is the only way to ensure the fees consider a due diligence conducted by the outsourcer, account for system customizations and other add-ons, and have been appropriately negotiated for the exact scope of services and service levels. The reference group outsourcer pricing would still need to be normalized to reflect the market complexity, services and service levels in the service agreement being benchmarked.

In order to establish an accurate and defendable fair market value price, the benchmark must use multiple data sources and perform extensive analysis, normalization, and validation. The major challenge in benchmarking is normalization. Normalization factors are most dependable when information collected from the company being benchmarked and the reference group companies is accurate, current, and validated.

In order to maximize the accuracy of normalization, multiple methods for checking, confirming and ultimately validating customer service operations information that is critical to the results should be performed. Each method will have strengths and weaknesses for uncovering inaccuracies and anomalies, but the combination results in more reliable data and normalization

Many factors can cause wide variations in pricing, both between contract years at one company and between two different companies. These factors could include labor rates, size of the customer base, customer density with the service area, size and number of recent price increases, weather, timing of upgrades to systems, etc. For example, if gas or electric prices increase to end-users, then calls increase, and call center costs would be higher following the price increase. Increases in call volumes may trigger a clause in the MSA that allows the outsourcer to increase its price. All factors must be considered and normalized during benchmarking.

UtiliPoint strives to provide results of fair market value price benchmarks that include operational benchmarking comparisons. UtiliPoint is able to do this by including the collection of transactional data and maintaining that information in a comparative database. UtiliPoint also collects information regarding contract clauses and change requests used to make improvements in processes. Providing such data allows the client and outsourcer to gain valuable knowledge in how to make improvements in performance and reduce the costs to manage and sustain day-to-day activities. It also provides insight into how other companies have addressed issues unique to outsourcing CC&B.

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