IT projects rarely meet return on investment goalsPosted On: Sep. 17, 2006 12:00 AM CST
The good news perhaps, according to a newly released survey, is that insurers are increasingly looking for quantifiable ways to measure the success of their information technology projects.
The bad news is that those projects rarely meet the measure insurers are using most often: return on investment.
In fact, according to the survey conducted by London-based Datamonitor P.L.C. for SunGard iWORKS, the insurance industry IT product family of Wayne, Pa.-based SunGard Data Systems Inc., only 11% of the insurers surveyed are meeting the ROI targets they set for their IT endeavors.
The survey, which examined 100 European insurers, found that concerns over IT project costs are leading insurers to look for more sophisticated ways to measures those projects' value.
Return on investment has become one of the most frequently used measures, the survey found, with over 90% of the insurers interviewed saying they use ROI measurements to justify IT projects.
Cost concerns have also led insurers to look for a return on investment in a relatively short time frame, SunGard and Datamonitor found, with 54% of those surveyed looking for a return on investment within 18 months. In the property/casualty sector, cost pressures are leading 92% of those surveyed to seek a return from IT projects within two years. On the life side, expectations are nearly as high, with 79% of those interviewed saying they expect to reach ROI on IT activities within two years.
Despite those high expectations, the reality is somewhat short of the mark. Nearly one-fifth of those surveyed said they fail to reach ROI targets in half their IT investments, and only one-third say they meet those goals in more than 80% of their IT projects.
The survey results point to the need for a greater understanding of what drives insurers' IT investments, according to SunGard and Datamonitor.
The companies suggest several alternative measures to determine where to make IT investments and how to gauge success. Benchmarking IT spending against peer groups can be used to identify companies' inefficiencies and competitive weaknesses, the authors suggest, while a "scorecard" approach identifying investments' "bang for the buck" can help determine projects most clearly aligned to the insurers' business needs and corporate objectives.
The study authors also suggest insurers be more realistic in setting ROI targets and note that not all projects are primarily justified by direct cost reduction or revenue contribution.
In using ROI as a measure of project success, SunGard and Datamonitor stressed it's essential to distinguish between time savings and cost savings, and stressed that not all projects can be expected to pay off within the same time frame.
Not all benefits from an IT project can be quantified in financial terms, the companies said, and for some projects, such as system architecture transformation, ROI might not be the right metric at all.
Finally, using multiple measures together with ROI will strengthen the understanding of an IT project's true contribution to the business, SunGard and Datamonitor said.