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Return on Investment in Existing Systems


Eric Weisburg

Since the recent publication of our research on IT value metrics, I’ve had numerous conversations with insurance IT executives about the topic. A recurring theme in these discussions is that the process for justifying and approving new investment tends to be better established than the process for maintaining and upgrading existing platforms. New investments are supported by either a business case process or a senior level mandate, but neither of these is common for existing systems; this can lead to underinvestment.

For those organizations that have business case processes supported by performance metrics and finances, discerning the actual impact of a deployed system is not easy. The ROIs developed to gain initial approval for the system deployment may have been developed at a high level. Analysis of financials to determine business benefits may be problematic since it can be tough to single out the impact of one particular system from the other factors that can influence accounting results.

The most elegant solution would be to incorporate the business case financial projections into the business’ long range financial forecasts, holding the business accountable for the improved system-enabled results. But, this is rarely done. In addition, the KPIs available to IT organizations, such as defect rates, aren’t relevant to the determination of business value. The appropriate business-based KPIs may not be captured, or may be impossible to attribute directly to the technology. Only rare insurers with extremely mature IT financial management practices collect and use these kinds of metrics.

One possible solution would be creating a plan to measure business value at project inception and building it into the application. Unfortunately, this option is not available to existing platforms. For those applications that are in maintenance and getting scrutinized, it is usually up to IT to demonstrate value. As benefits accrue to other business units, IT needs to engage its peers in discussions around value sources and quantities. Exacerbating the challenge, IT and other business units may not be accustomed to identifying and quantifying value.

Once these hurdles are overcome and suitable KPIs are agreed upon, performance indicators can be calculated from existing business systems, or new infrastructure can be built and implemented to develop the desired metrics.

Regardless of project authorization approach, the ongoing monitoring of benefits is a challenge for most organizations. Even insurers with a documented process for regular post-implementation review of KPIs and financial metrics can be stymied by the difficulty of determining and communicating the actual value of these success factors.

Being mindful that you may be asked to demonstrate value for the system once it is in maintenance may be the best solution of all.

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About Eric Weisburg

Eric Weisburg is a Vice President of Research and Consulting at Novarica with expertise in insurance technology, operations, and finance. He has over 20 years of insurance experience in industry, consulting and software. For the past several years he has been helping clients understand and implement cognitive, analytics and information solutions. His experience spans most lines, channels and horizontal functions.