This is the second part in a series. Click here to read part one.
In the first part of this series, I laid out the shortcomings of using a quantitative business case to decide on proceeding with big insurance modernization projects. Recently, I’ve been fortunate to partner with several clients who’ve taken a different approach to funding initiatives and measuring value on an ongoing basis.
First, do you fund an initiative or not? Here are a few examples of alternate models:
Example one: The “critical thinking” model. I have seen at least a few leadership groups not insist on the quantitative business case, but instead request “arguments” and answers to questions for pursuing initiatives. 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? Is it a table stakes initiative?
Armed with honest answers to these questions and order-of-magnitude estimates, these leaders then discuss, debate and engage in critical thinking to reach consensus on whether or not to pursue the initiative. The emphasis is on the dialog, debate and discussion rather than a simple processing of contrived numbers.
Example two: 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, “together” being the operative word. Every 12 months, business and IT together go up to an executive oversight group, show what they have done with the “pot of money” and, based on this, get additional “grants” together. Because business and IT agree, and tangible value is demonstrated, additional funding is granted till business and IT feel that major items are achieved and only diminishing returns are left.
It may be argued that for complex transformations, continuous funding is not possible, especially if commercial software is involved. I am not convinced. First, even with very large enterprise initiatives, I have seen the model work; second, even with commercial software purchases, the costs of such software often is a very small fraction of the overall outlay, perhaps no more than even 10 percent to 20 percent.
A third model is akin to thinking about one’s health. If you know that your health is important in the long run, then rather than try to quantify the benefits of investing in keeping yourself healthy, you might simply set aside a steady stream of “investments” towards the intended objective. This steady stream could be for healthy food, exercise and fresh air, periodic visits to the doctor, etc. Perhaps insurance initiatives, especially those of the “modernization” and “transformation” kind that only yield benefits over a long period of time, ought to be treated as you might treat your personal health. Without regular investments in health, the organization will get sick.
There are other variations of the models described above that include qualitative arguments on the benefits side with “best effort” cost estimates, fixed funding for a fixed number of years with expectations for periodic “report cards,” etc. But none of them are the traditional return on investment approach.
The next question is, once you’ve determined how to fund the initiative, how do you spend the funding?
How is money spent and resulting value measured along the way? All too often, regardless of how funding is appropriated, this pot of money is handed to those that are supposed to be responsible for bringing the initiative to fruition. “We’ve given you the money, now get us everything you promised” is the dynamic that gets set up between those that are responsible for acquiring the money (usually the business) and those that are supposed to deliver a “set of scope” for the money (usually IT).
In reality, countless variables and problems arise that can trip initiatives up. In the worst case, you can be a dead duck before you’ve barely started. Besides disappointment and frustration, you sometimes get finger-pointing and colorful name-calling.
Here again, a different approach to best spending that pot of money to achieve goodness and value may be needed, I have seen those responsible for recent modernization initiatives that I’ve been part of take bold approaches.
The pot of money is not handed off by those that acquire it to those that are tasked with delivering a huge list of things. Rather, joint ownership is established. 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’s worth spending the money.
I have seen a healthy dynamic ensue from this approach, Sometimes, what was originally deemed beneficial is given up; sometimes, new benefits are identified and added. And often, when the pot of money does run out, I have seen business and IT jointly make the case for additional funding to deliver additional returns. And more often than not, they do get the additional funding because executives who allocate capital can tangibly see the good that came from the original allocation.
A few years back, I undertook a small-scope remodeling home project. An architect/designer drew up the concepts and plans. A general contractor agreed to execute the plans, having provided some rough estimates. Like insurance transformation initiatives, it was defined scope only briefly. As the project unfolded, execution revealed many changes were needed — some necessary and others as discretionary or choice items.
While the architect and general contractor collaborated and provided options, my wife and I (responsible for the pot of money) had to make a series of micro-decisions about the return that we might experience and the costs required. Like most IT projects, the project took longer and cost more than originally envisioned, but we were happy with the results. Reflecting on this experience, I realize that those successful teams that I have described above essentially were taking the same approach. While a home remodeling exercise is rather trivial compared to an insurance modernization or transformation initiative, to me at least, the underlying principles seem similar.
While the theory of the quantitative business case may be ingrained and all too appealing, I have seen it offer very little practical use. A (non-quantitative) case can perhaps be made to let go of the theory and embrace more pragmatic approaches to fund, monitor, and measure the returns of insurance initiatives.
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 firstname.lastname@example.org.
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