When insurance executives are deciding whether to invest in upgrading a policy administration, claims, billing or other major system, the numbers should rule. If the ROI is there, it's full speed ahead, right? No!

The quantitative case is significantly overrated: It doesn’t serve the purpose it was intended for very well and it may, in fact, be an exercise in futility.

While the exercise may sound logical, with insurance IT initiatives, quantifying income returns, investments and time periods with precision is extremely difficult, if not impossible. Therefore, since the numbers aren’t reliable, what are the alternatives?

One alternative is the critical thinking model. You should ask yourself the following questions: Why? Why not? What are the risks? What is the order of magnitude of investments instead of precise estimates? What will happen if the initiative is not undertaken?

Leaders can then reach consensus on whether to pursue the initiative. The emphasis is on debate and discussion rather than processing contrived numbers.

Another alternative is the continuous-funding-based-on-results model. I have seen a few clients allocate an initial investment outlay based on a joint case made by business and IT together. Every 12 months, business and IT go to an executive oversight group, show what they have done with the “pot of money” and, based on this, get additional grants together.

A third alternative is the health model. If you know that your health is important in the long run, you might simply set aside a steady stream of investments toward the intended objective. Without regular investments in IT health, the organization will get sick.

Once the money is allocated, don’t just give it to IT. A series of “micro decisions” are jointly made about what to spend the money on. Estimates of effort for smaller-scope items come from the execution side of the team. Those who will benefit from the fulfillment of that scope decide whether it is worth spending the money.

Ram Sundaram is a principal of X by 2, a technology consulting firm that specializes in IT transformation projects for the insurance industry.

Readers are encouraged to respond to Ram using the “Add Your Comments” box below. He can also be reached at ksundaram@xby2.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access