Are your business and IT teams lacking agreed-upon goals? Is your risk-aversive culture affecting your ability to manage IT projects efficiently and effectively? There’s a price to pay, according to New York-based research firm Novarica.
In its latest report, “The Indecision Cycle: Avoiding ROI Erosion Before the Project Starts,” the result is usually either a failed project, a project that has lost executive sponsorship and never gets launched or, at best, a project that is successfully implemented but suffers from a severely eroded ROI as unrealistic expectations for business value and cost are not met.
“Each poor process or bad decision is compounded by the next one,” Matthew Josefowicz, director, insurance at Novarica, tells INN.
According to Josefowicz, who authored the report with Chad Hirsh, principal in Novarica’s insurance practice, insurer executives’ most common complaint about IT is that everything takes too long and costs too much. While one should expect solutions to complex operational and data management problems to be a significant undertaking, the return on investment (ROI) of IT projects is often eroded unnecessarily by poor project management, he says. “That poor project management starts before the project does—in the decision cycle.”
The indecision cycle usually begins with a lack of a concrete business case and the tendency to specify current practices instead of targeted results, which result in complex specifications and requests for proposals that duplicate legacy business practices rather than create an opportunity for innovation, flexibility or process optimization. The vendor selection process becomes ineffective and inefficient when data on too many vendors makes it difficult to act upon, or when vendors take control of the agenda. Finally, even after vendor selection is complete, many insurers engage in protracted negotiations focused on minor details rather than the over-reaching goals of the project, says the report.
While acknowledging that compared to other industries, especially its peers in financial services, insurance tends to move slowly when it comes to embracing technological change; the report holds that it typically takes between six and 18 months to define the problem and select a solution provider—and this is before the project actually begins.
This lengthy process has its roots in a lack of urgency, says Josefowicz, who maintains that few carriers conducted core systems replacement projects or major consumer-facing initiatives until well after the dot-com boom and bust, creating a landscape with little competitive pressure to make changes.
“The bad habits that developed in the past have carried over into the present,” he says, “and continued adherence to old IT governance policies has institutionalized the problem.”
Josefowicz says that although the indecision cycle is almost always worse in carriers with poor governance, sometimes a seemingly good governance system that is really designed more to stop bad decisions than to enable good ones can be used to extend the cycle.
The industry’s risk-aversive cultural history is another factor to consider. “Inaction is often mistaken for prudence and caution,” notes Josefowicz. In a risk-averse industry, bold initiatives or leading-edge technologies have rarely been a safe bet for rapid promotion within the IT organization.
“Not only is insurance a risk-averse industry, but some insurer executives are risk-averse people,” notes Josefowicz. “In a company that tells its staff that it's better to make no decision than the wrong decision, it's not surprising that people act accordingly. Not taking chances has historically often been more rewarding.”
Josefowicz maintains that while in the past avoiding decisions through institutional inertia might have been an effective risk management strategy, today it’s a recipe for losing competitive advantage.
Finally, for many carriers, there is simply a lack of awareness of what vendor selection or project planning best practices are, such as setting up a selection team that includes both business and IT resources, consistent use of pilot projects and/or proofs-of concept, and the use of expert resources to help gather information on the project and vendors before, during and after the selection process.
And vendors also can play a role in creating best practices, adds Josefowicz.
“Vendors can help insurers by helping their internal champions build business cases, and convert wary sponsors,” he says. “Vendors should talk to their internal champions at their prospect companies and find out who all the stakeholders are in a decision and what their motivations are, then make sure that the presentation of their solution can address all these issues.”
For more information about the Novarica report, visit www.novarica.com.
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