European Utilities residential cost-to-serve metrics

Content

• Chapter 1 Executive Summary
  • Determining cost-to-serve requires a clear structure in order to set precise definitions that enable accurate measurement
  • Datamonitor's cost-to-serve model defines a comprehensive set of KPIs, drivers, and cost categories
  • The level of confidence for European cost-to-serve data increases when undergoing a three stage process of normalisation
  • Scale, maintenance costs, billing and staffing in the contact centre drive the variance between Small, Medium and Large players
  • Scale impacts on costs when comparing Large, Medium and Small European suppliers, with a 4.82 difference between Large and Small
  • AMR, staffing and number of bills sent are the key sensitive KPI levers that can deliver a 10% saving in cost-to-serve
  • Datamonitor has used the cost-to-serve to deduce benefits associated with four best practice opportunities
  • A like for like comparisons to the UK average adds understanding but is not a fair comparison
• Chapter 2 Cost-To-Serve Framework And Model
  • Cost to serve has increased in importance as fuel costs have risen
  • Determining cost-to-serve requires a clear structure in order to set precise definitions that enable accurate measurement
  • Datamonitor's cost-to-serve framework defines a comprehensive set of KPIs, cost drivers, and cost categories
  • This report uses Datamonitor's complete model of cost-to-serve, leveraging its performance measures, KPIs and cost drivers
• Chapter 3 Normalisation
  • The level of confidence for European cost-to-serve data increases when undergoing a three stage process of normalisation
  • Determining a European cost-to-serve figure encounters a range of disparate problems when normalising data
  • Problems of normalisation
  • Datamonitor solutions to normalise data
  • Problems of normalisation was overcome by building a cost inflator and deflator tool and segmenting companies by size to achieve a Stage 1 and borderline Stage 2 normalisation
  • Currencies and conversion rates
  • With varying sizes of companies, does one take an average size for all, or can one segment suppliers?
  • The data is company specific, therefore which companies does one choose? Does the coverage includes all European markets or only liberalised residential energy markets? With over 100 European utilities, if one can not survey all of them how can a market average be determined?
  • Total labour costs are highest in Denmark, which also has the highest proportion of salary and wages costs. When indexed against the EU 15 average only Spain has a lower total labour and wages and salary costs
  • When inputting total labour costs by country there is a 11.95 difference between Denmark, the highest and Spain, the lowest
  • Average customer accounts range from 232k for Small suppliers to 4.91m for Large suppliers when assessing cost-to-serve across the basket of Energy companies researched
• Chapter 4 Benchmarks For Small, Medium And Large Players
  • Scale, maintenance costs, billing and staffing in the contact centre drive the variance between Small, Medium and Large players
  • Small, Medium and Large players are benchmarked against Datamonitor's Adequate Practice Assessment (APA)
  • Scale impacts on costs when comparing Large, Medium and Small European suppliers, with a 4.82 difference between Large and Small
  • Contact centre and billing drive the 8 differential between a Small suppliers cost-to-serve against Datamonitor's APA
  • Maintenance costs form the majority of European suppliers' cost-to-serve
  • Contact centre staffing is the largest individual cost component of cost-to-serve for the three supplier groupings
  • The widest variation in costs between small to large European suppliers is found in the billing and contact centre departments
  • Datamonitor's appraisal of operational performance is based on 4 performance categories
  • Across continental Europe metering costs are controlled by regulation and prices have not been driven downwards from higher switching activity
  • Billing problems exists in inflexible systems, but low switching has not made this critical to action.
  • More frequent payment cycles has meant higher payment costs and the lack of penetration of 'other' payment options has prevented price pressures on banks to lower their rates
  • New technology and call centre development has prevented a widening of costs between Small and Large European suppliers
• Chapter 5 Understanding Cost-To-Serve Levers
  • Datamonitor has used an inductive approach to identify those levers most able to deliver a 10% cost-to-serve improvement
  • Undergoing sensitivity analysis on Small, Medium and Large suppliers KPIs shows that there are four ways in which to reduce cost-to-serve by 10%
  • AMR, staffing and number of bills sent are the key sensitive KPI levers that can deliver a 10% saving in cost-to-serve
  • Billing call length volumes and cost of meter maintenance are the key cost drivers in delivering a 10% saving for Large a supplier's cost-to-serve
  • For a Large supplier the KPI metric most sensitive to a 10% change is the number of estimated first bills sent to regular customers each year
  • CSA average annual wages are the most sensitive to a 10% cost reduction for a Large supplier across cost drive metrics
  • Medium scale suppliers show markedly different sensitivities to change in underlying cost drivers
• Chapter 6 Best Practice Opportunities
  • Datamonitor has used the cost-to-serve to deduce benefits associated with four best practice opportunities
  • Introducing AMR for Large European suppliers cuts opex by almost a third through lower metering and contact centre costs
  • Introducing an AMR penetration rate of 50% reduces the cost-to-serve by 46.4m, a 26.9% saving overall
  • There is a 7.6m overall maintenance costs saving from removing standard meters maintenance costs and accounting for AMR maintenance costs
  • AMR has obvious metering opex benefits, from removing the need for physical reads and staffing resource to support this
  • The level of AMR penetration reduces the number of estimated bills generated
  • As AMR reduces customer queries regarding physical meter reads and estimated bills thus the number of billing and metering CSA's falls by 740 agents
  • Medium sized suppliers can reduce cost-to-serve by 1.0% by decreasing 0.01 on 3 core billing cost metrics and increasing first time bill payers by 5 percentage points
  • Increasing 'payment without reminders' and reducing bill related costs by 0.01 reduces the cost-to-serve by 0.46m, a 1.01% saving overall
  • The largest savings are gained through reduced postage and packaging costs, bill execution and bill staffing levels
  • This reduces by the total number of bills sent out in a year by 344,673 and lowers billing staff required
  • Prompter payment would reduce the overall number of telephone contacts and thus the cost of calls
  • Smaller European suppliers can see costs fall by 109k by shifting 10% of their cheque payment customers to paying online and direct debit
  • Shifting payment online and to direct debit would deliver an overall cost saving of 109,275, 0.47 per customer - a saving of 1.28%
  • The three largest savings come under 'Total cost of wages for call centre agents', 'Total cost of credit staff wages' and 'Total cost of cheque based payment processing'
  • Redistributing the method of payment metrics reduces the 'Total number of bills sent' by 27,698
  • The number of direct debit transactions would increase by 9.43% while the number of cheque transactions would fall by 55.95%
  • Consumer contacts would fall by 2.43%, lowering telephone costs by 18,304
  • Medium sized European utilities would realise a 1.36% cost saving from increasing call automation by 4 percentage points
  • A 4 percentage point increase in call automation reduces costs by 614,290, a 1.36% saving overall
  • 80% of the total savings are attributed to a reduction in contact centre FTEs
  • Increasing automated calls by 4 percentage points would lower CSA staffing by 25 agents
• Chapter 7 Comparison With Uk Cost-To-Serve Average
  • A like for like comparisons to the UK average adds understanding but is not a fair comparison
  • The following section investigates UK performance against European suppliers' performance in each of the four service functions
  • The list of key metering performance indicators range from metering visits per day to percentage of switching read failure rates
  • A Large suppliers performance in the key metering performance measures matches the UK average, but for optimisation rates and failed in-cycle reads
  • Metering recommendations for European suppliers focus on increasing self meter reads to reduce service related calls in the short term and AMR in the long term
  • The list of key billing performance indicators range from total number of bills sent to percentage of billing inaccuracies
  • A Medium suppliers billing performance outperforms the UK average due to fewer estimated bills
  • Large or Small, large scale CIS billing systems or off the shelf system, suppliers need to get vendors to deliver the efficiencies they promise to achieve lower cost-to-serve
  • The list of key payment performance indicators range from managing non-paying customers to the type of payment method available
  • Small suppliers outperform the UK average due to a larger proportion of customers paying through their bank, but frequency of payment pushes up costs
  • Higher customer numbers paying via their bank indicates lower potential costs, but high merchant fees and customer apathy to online payment has maintained higher costs
  • The list of key contact centre performance indicators range from the total number of calls to the percentage of calls automated
  • Datamonitor's research provides recommendations on improving contact centre performance
• Chapter 8 Appendix
  • Datamonitor set a number of additional assumptions to ensure coverage and reliability of determining European cost to serve
  • Future readings
  • SPP writing team
  • How to contact experts in your industry
• List Of Tables
  • Table 1: Datamonitor's rating of operational performance for Small, Medium and Large European players
  • Table 2: AMR scenario - Costs savings across 4 core segements of metering, billing, payment and contact centre
  • Table 3: Metrics impacted by introducing AMR for 50% of power customer base* - metering
  • Table 4: Metrics impacted by introducing AMR for 50% of power customer base* - billing
  • Table 5: Metrics impacted by introducing AMR for 50% of power customer base* - contact centre
  • Table 6: Bill cost reduction scenario - Costs savings across 4 core segements of metering, billing, payment and contact centre
  • Table 7: Metrics affected by shifting customer paying on first bill for MODEL_Medium, from 70% to 75% and a reduction of 0.01 for Postage and packaging cost per bill, Bill execution cost per bill (paper etc) and Capital cost of consolidating the billing system per customer - Billing
  • Table 8: Metrics affected by shifting customer paying on first bill for MODEL_Medium, from 70% to 75% and a reduction of 0.01 for Postage and packaging cost per bill, Bill execution cost per bill (paper etc) and Capital cost of consolidating the billing system per customer - Contact centre
  • Table 9: Payment change scenario - Costs savings across 4 core segements of metering, billing, payment and contact centre
  • Table 10: Metrics affected by shifting 'other payments' to direct debit and online payment methods - billing
  • Table 11: Metrics affected by shifting 'other payments' to direct debit and online payment methods - payment
  • Table 12: Metrics affected by shifting 'other payments' to direct debit and online payment methods - contact centre
  • Table 13: Contact centre change scenario - Costs savings across 4 core segements of metering, billing, payment and contact centre
  • Table 14: Metrics impacted by increasing the proportion of automated calls by 4 percentage points
• List Of Figures
  • Figure 1: Framework of Datamonitor cost-to-serve model
  • Figure 2: Three stages of normalizing European data
  • Figure 3: Cost-to-serve per customer for the Small, Medium and Large European suppliers and Datamonitor's Adequate Practice Assessment (APA)
  • Figure 4: Change required in lead KPIs to deliver a 10% decrease in cost-to-serve
  • Figure 5: Framework of Datamonitor cost-to-serve model
  • Figure 6: Illustrative example using audit tracking tool in excel to demonstrate interdepencies across performance measures, KPIs and cost drivers
  • Figure 7: Three stages of normalizing European data
  • Figure 8: Total labour costs and wages and salary costs for the 8 liberalised energy markets, 2004
  • Figure 9: Total labour costs and wages and salary costs for the 8 liberalised energy markets indexed against EU 15 average, 2004
  • Figure 10: Impact of Labour deflator to on Medium supplier cost-to-serve per customer across the 8 European liberalised markets
  • Figure 11: Total size of accounts and average number of electricity customers for Small, Medium and Large European suppliers, 2005
  • Figure 12: Cost-to-serve per customer for the Small, Medium and Large European suppliers and Datamonitor's Adequate Practice Assessment (APA)
  • Figure 13: The relative cost-to-serve per customer for the Small, Medium and Large European suppliers against Datamonitor's Adequate Practice Assessment (APA)
  • Figure 14: Share of overall costs broken down by labour, non-labour and maintenance costs
  • Figure 15: Share of overall costs broken down by sub component
  • Figure 16: Cost range of sub-components of cost-to-serve of Small, Medium and Large European suppliers
  • Figure 17: Change required in lead KPIs to deliver a 10% decrease in cost-to-serve
  • Figure 18: Change required in lead cost drivers to deliver a 10% decrease in cost-to-serve for a Large supplier
  • Figure 19: Change in cost-to-serve from a 10% change in KPI
  • Figure 20: Change in cost-to-serve from a 10% change in cost driver
  • Figure 21: Change in cost-to-serve from a 5% increase and 5% decrease on a Large and Medium suppliers cost drivers
  • Figure 22: AMR scenario - Actual and percentage change of overall, metering, billing and contact centre costs
  • Figure 23: AMR scenario - Total cost differential between original and new final values for MODEL_Large
  • Figure 24: Breakdown of cost savings when introducing the cost of running AMR for a Large supplier from 0% to 50%
  • Figure 25: Bill cost reduction scenario - Actual and percentage change of overall, billing and contact centre costs
  • Figure 26: Bill cost reduction scenario - Total cost differential between original and new final values for MODEL_Medium
  • Figure 27: Breakdown of cost savings on a increased performance on % of customer paying on first bill for MODEL_Medium, from 70% to 75% and a reduction of 0.01 for Postage and packaging cost per bill, Bill execution cost per bill (paper etc) and Capital cost of consolidating the billing system per customer
  • Figure 28: Payment change scenario - Actual and percentage change of overall, billing, payment and contact centre costs
  • Figure 29: Payment change scenario - Total cost differential between original and new final values for MODEL_Small
  • Figure 30: Breakdown of cost savings from a 10 percentage point reduction in cheque payment, with a 5 percentage point increase in DD and 5 percentage point in online payment
  • Figure 31: Contact centre change scenario - Actual and percentage change of overall and contact centre costs
  • Figure 32: Contact centre change scenario - Total cost differential between original and new final values for MODEL_Medium
  • Figure 33: Breakdown of cost savings from increasing the proportion of automated calls by 4 percentage points
  • Figure 34: Comparison of key metering performance measures for European Large against the UK average
  • Figure 35: Comparison of key billing performance measures for Medium against the UK average
  • Figure 36: Comparison of key payment performance measures for Small against the UK average
  • Figure 37: Comparison of key contact centre performance measures for Large against the UK average (1)
  • Figure 38: Comparison of key contact centre performance measures for Large against the UK average (2)