Capturing the Strategic Value of IT: A Review of IT Investment Evaluation Methods

by Nicolas Michellod, September 9, 2008

Abstract

Zurich, Switzerland September 9, 2008

As the role of IT evolves and transforms the way insurance companies conduct business, decisions related to IT investments receive more attention. When defining actions and investments supporting their overall strategy, the crucial issue for insurers is to define which range of projects they should give top priority.

In a new report, , Celent examines various IT investment evaluation methodologies and the rationale behind them. Traditional methodologies are reviewed and Celent concludes with practical advice on how those involved in the IT decision making process can select the methodologies most appropriate for their situation.

In most cases, it is still unclear for insurers how to compare a strategic investment in IT that includes a range of intangible and uncertain costs versus benefits with other investments whose elements are more tangible. In some organizations, IT is considered a key enabler for supporting an enterprise-wide strategy. The problem linked to evaluating the real benefits it generates still triggers tension in executive committees, even though CIOs and, to a certain extent, CTOs have become increasingly involved in the decision making process.

"Choosing an appropriate evaluation method has often been at the center of tensions between CIOs and CEOs/CFOs when deciding to set IT project priorities or investing in a new IT infrastructure." notes Nicolas Michellod, senior analyst with Celent’s insurance group and author of the report. "Insurers should evaluate each project according to its level of impact on strategic goals and organizational structure in order to select an investment evaluation methodology which best captures the strategic value of IT."

The 32 page report contains 4 figures and 14 tables. A table of contents is available online.

Members of Celent's Life/Health and Property/Casualty research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
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Tel.: +81 3 3500 3023

Table of Contents

Zurich, Switzerland September 9, 2008

Executive Summary 3
Introduction 4
The Benefits and Costs of IT 5
Traditional Evaluation: ROI Methods 8
Alternative Methods 15
Choosing an Evaluation Method 24
Conclusions 30

 

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