Overall IT spending among U.S. insurers in 2005 will be $28.8 billion, accounting for a little less than 3% of total net written premiums, and will grow to $42 billion by 2010, according to reports from Boston-based Celent LLC.How are IT departments going to manage that spending? What software will they buy? Which software should they toss or keep? What kind of return are they getting? Insurance executives want to know answers to these questions in their own companies.
According to a report, "Optimizing the IT Portfolio for Maximum Business Value," from Cambridge, Mass.-based Forrester Research Inc., "Boards of directors and executive management (in an array of industries) want to know how decisions are made, how funds are allocated and what the actual returns and benefits are of their IT spending."
IT is expected to drive cost out of the running-the-business budget and pass the savings onto the company or reinvest in new initiatives, according to the report.
IT portfolio management is one way IT can report and keep track of its expenditures and returns. The Forrester report reveals that IT project portfolio management is not widely used by many financial services companies, but these firms are taking steps to better manage their IT investments, which sometimes includes implementing IT portfolio management software.
Forrester defines IT portfolio management as the active management of the entire IT investment portfolio, including IT asset management, application portfolio management and project portfolio management, with the goal of maximizing the firm's investment in information technology.
Companies can use IT portfolio management to provide increased visibility into IT spending-a holistic view of the entire IT budget and how that spending breaks down-by categorizing portfolio elements and linking them to the business processes they support. It also can aid in decision making by exposing how projects get funded and prioritized based on criteria the users define.
For its report, Forrester questioned 73 North American IT decision-makers from various industries about managing IT portfolios. The survey results and follow-up interviews uncover little evidence of mature IT portfolio management practices. Thirty-three percent of respondents replied they had a formal process in place, and 56% were developing one. But of those who said they were developing a process, 61% indicated their firms had been doing so for less than six months.
In other research by Forrester, 65 senior IT decision-makers were asked why they were using IT portfolio management. Not limited to just one answer, 83% of respondents said they were using it to prioritize projects, while 65% said they were using it to make IT investment decisions. And 46% said the desire to provide more transparency over IT operations was the catalyst.
Marc Cecere, vice president of Forrester's financial services team, finds the same to be true in the insurance industry. Cecere tracked IT portfolio management in the insurance industry about nine years ago, when there was little to no activity.
He saw insurers start to consider and apply the technologies and tools five or six years ago. Those insurers were large multi-line companies-and still are, according to Cecere.
"A multi-line company will carry not only many versions of life products but also P&C products. They need this (technology) more than others because of the complexity of their product offerings," he says. "If all you're doing is auto, you have a limited set of systems and applications that need to be supported. It may be a very large set, but it's not nearly as complex as (a combination of) annuity products, term-life, P&C, auto, home and special commercial."
Cecere says large insurers use IT portfolio management to try to better manage all their applications. "I was working (with a large insurer) last week that has 13 claims systems and probably 25 or so underwriting systems," he says. "(They said), 'we just don't need that many. We don't need one policy administration system for every product that we have or every version of a product that we have.' These portfolio tools and techniques can reduce the complexity associated with having so many systems," he says.
POISED TO GROW
The IT portfolio management software market is growing. But most of the work Cecere's seen in IT portfolio management is more on the technique side. Most of the companies he works with use simple, manual tools, such as PowerPoint and Excel or other spreadsheet applications.
But that will change in coming years, he adds, and insurers will use more sophisticated IT portfolio management software. "Insurers are interested in looking at their applications across the organizational silos. When you start doing that, you hit a level of complexity that is very difficult to manage with manual processes."
As this happens, Cecere says, the interest in software to automatically manage all applications will increase.
Such software on the market now can automatically provide time and cost projections of existing or planned projects, in addition to numerous other capabilities. It can also alert IT staff as to which projects have exceeded the planned budget or intended timetable or projects that do not comply with regulations.
How to Optimize Your IT Portfolio
* Develop and communicate a plan and build consensus. IT portfolio management is part of an overall IT governance program and reaches across the entire enterprise. Plan to implement it in stages, tackling the low-hanging fruit first and then building upon incremental "wins."
* Tools are helpful but not mandatory in the beginning. There are a number of vendors that have built robust solutions for managing and optimizing IT portfolios, maintaining inventories of assets through auto discovery, providing "what/if" modeling and managing the financial and resource allocation requirements. However, many companies are currently using Excel spreadsheets and homegrown applications to manage their portfolios. It's possible to get started without buying a tool, but to get the most value from your program, automated tools will eventually be required.
* Empower the program management office (PMO) to manage the effort. Implementing IT portfolio management across the enterprise will require strong leadership from executive management, business management and IT management; however, the mechanics of implementing the processes, using the tools, and measuring and communicating progress should be assigned to the PMO.
* Don't underestimate the cultural change required. While governance processes underpin IT portfolio management and software tools can help automate many of the processes, IT portfolio management is ultimately about changing the way you make IT investment decisions, which makes it an enterprisewide change management effort. This implies a change in culture, which is the single largest barrier to implementing a successful IT portfolio management effort. Make sure executive management is on board and takes an active role.
Source: Forrester Research Inc., "Optimizing the IT Portfolio for Maximum Business Value."
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