SOURCE: X by 2

X by 2

September 23, 2014 01:01 ET

Insurance IT Investment Decisions Take More Than Numbers; Think Critically, X by 2's Sundaram Writes

FARMINGTON HILLS, MI--(Marketwired - Sep 23, 2014) - 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, full speed ahead.

No! writes K. Ram Sundaram, a principal of X by 2, in Insurance Networking News

"The quantitative case is much overrated, doesn't serve the purpose it was intended for very well, and may in fact be an exercise in futility."

While the exercise sounds logical, with insurer IT initiatives, "quantifying income returns, investments, and time period with precision is extremely difficult, if not impossible," he writes.

Since the numbers aren't reliable, what are the alternatives? 

One is the "critical thinking" model. "Ask 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," he writes.

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. 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," he writes.

A third choice 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' towards 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, Sundaram advises. 

"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 or not."

His and other articles can be read at http://xby2.com/articles-blogs. #insurancetech.

X by 2 is a technology consulting company in Farmington Hills, Mich., specializing in software, data architecture and transformation projects for the insurance industry. Sundaram can be reached at ksundaram@xby2.com.

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