Value leakage program consists of highly specialized exercises that are conducted alongside the existing control processes and internal and external audits. The leaks that are detected and the resulting amounts that can be recovered are often very significant. Normally, 1-percent improvement in EBITDA easily requires a 10-percent increase in value. Thus the money can be recovered in a value leakage program process contributes directly to improving the bottom line of the company. Since, it does not need to be offset by additional value.

So the investment in value assurance is quickly paid back. But here again, prevention is better than cure. Recovering money that has incorrectly leaked away is important. Even more important is the creation of a new awareness within the company concerning value leakage. Increasing the employees’ knowledge concerning this problem will automatically result in processes being refined and optimized in various domains. This in turn leads to improved monitoring of values and costs, transparent and efficient business processes, balanced contract compliance, a healthy cash flow, optimal use of working capital and improved EBITDA of this sustainably, with a focus on the long term aspect of the company.

Revenue leakage is caused by any number of the following culprits:

• Companies unable to keep pace with today’s complexity
• Reliance on manual processing
• Pricing errors

 
How Can Value Leakage be Stopped?
Stopping Value leakage does not have a one-size-fits-all answer, but rather a variety of potential solutions can be exercised, all dependent on the cause itself. The response may vary, but common ways to resolve this issue include improvements in data validation, corporate guidelines, process workflows and increased use of automation.

Offering service at different price points can help increase potential and likely unknown revenue. Tiered pricing models are often used in recurring revenue models to help give different options for potential customers, framing the reference for the price points.

Tiered pricing helps you make more money, broaden your potential audience, gives customers a choice, and helps maximize the value of the offering—preventing revenue leakage.

Setting up a more integrated internal knowledge management system can allow the team members fingertip access to corporate policies to ensure everyone is easily informed across the board on steps to follow. This can help prevent such questions as ‘is this task billable or not billable?’ and ‘what rate should be used in this situation?’

Scope of action for performing the Value Leakage Audit (VLA) would be:
Acquiring knowledge of the end customers business, its operations, dealings with suppliers and other operational understanding required to perform the work.

Receiving the preliminary documents based on business understanding obtained such as contracts with suppliers, accountingdata under review, confirmations from counterparties etc.

Performing Strategic Value Leakage Audit (VLA), would include:

• Line of business or product VL check (financial and business control effectiveness) – we’ll review a particular line of business or product you offer and assess the effectiveness of the end to end control framework that ensures you are maximizing profit.
• Reviewing the current strategy in relation to Value Leakage.
• Billing audits (contract to bill validation, reference data and business rules) – We’ll conduct targeted audits of your commercial contracts and your billing data to find out leakages and its causes. (Running exceptional reports on the accounts payable transactions to detect incorrect or double payments, transactions with specific third parties (often suppliers) are examined in detail, checking on discounts, calculations and other material clauses of the contract)
• Performance management process – linking business strategy to Key Performance Indicators.

 
From critical evaluation of data

• We‘ll create the metrics, reports and analysis for decision support systems. We’ll help analyzing the known losses, ensuring you are mitigating them as much as possible and recovering as much as you reasonably can.
• We’ll help you to learn from past mistakes, extract key learning and prevent future reoccurrence.
• We’ll project, or program, manage key initiatives or projects that you mobilize.

Written by
Tharmesh Garg and Diya raj
Articled Clerk