Blog

Don’t Gamble More than You Can Afford to Lose on 2010 IT Budget

Ara Trembly
Insurance Experts' Forum, September 24, 2009

Anyone who has ever attempted to handicap a horse race can tell you that trying to strike a balance between minimizing risk and making a bold wager can be the most difficult of tasks. 

If you bet the low odds (low risk) favorites in a race, you’ll have a better chance of scoring, but then again the payoffs are likely to be small.  Betting those tempting long shots promises much bigger rewards, but the risk increases in proportion to the size of the payoff, because those 50-1 odds plodders have proven their incompetence over and over.  Hundreds of books and probably just as many “systems” have been developed to attempt to held handicappers with this problem, but as those of us who occasionally play the ponies know, a system is only as good as today’s results. 

Yet those who take wagering seriously and do it well are not just taking shots in the dark.  They make their bets based on information, and the more data they can gather, the more informed the decision.  They also allocate their betting funds in such a way as to get the maximum return on the risks they are taking.  Above all, those who do this successfully will tell you that you should “never gamble more than you can afford to lose.” 

This brings us, perhaps improbably, to the subject of insurance IT budgets—in particular, setting the budget for the coming year.  It seems to me that, especially in this horribly uncertain economic climate, the task of finding a budget number and setting priorities is extremely difficult—and potentially risky.  Should insurers play it “safe” and either maintain or decrease the budget number in the hope of standing pat until conditions improve and the risk profile decreases?  Or is now the time to spend on new systems and programs that will set an insurer up to take advantage of the recovery with great products that are already in place or ready to launch? 

The “stand pat” approach is clearly less risky, and nothing appeals more to an insurance company than less risk.  On the other hand, as my friend Chuck Johnston of Oracle said recently, insurance is a business that favors first-movers.  Thus, companies that are forward-looking are much more likely to be in a better competitive position when the economic situation improves. 

How, then, does an insurer strike the needed balance?  I suggest you take your cues from the professional gamblers.  Making decisions starts with priorities, and a company’s priorities are tied up in its primary goals.  If you consider both existing and proposed IT projects and rank order them according to how much they contribute to those goals, you’ll have a good start.  Of course, you will have wanted to gather as much information on each of these projects (projected costs, time frame, and how well they have worked elsewhere) as possible. 

Next, you need to balance the priorities with their associated risks and anticipated returns.  If the risk is too great—more than your company can afford to lose—the project may not be right, at least for now.  The final step involves putting more of your budget into the high priority items (the ones that best meet your company’s goals and objectives) that have the largest potential payoffs. 

And there you have it.  The year is winding down—the horses are in the gate.  They’re off!

Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant and a longtime observer of technology in insurance and financial services. He can be reached at ara@aratremblytechnology.com.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

 

 

 

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Insurance Networking News, please use the form below to login. When completed you will immeditely be directed to post a comment.

Forgot your password?

Not Registered?

You must be registered to post a comment. Click here to register.

Blog Archive

In the Big Data Era, Storage is More than 'Just' Hardware

For on-premises needs, the latest technologies, including flash, solid state drives, and in-memory computing offer new ways to provide rapid access to new data.

Core Transformation – The Ultimate Balancing Act

The core transformation journey requires companies to shift from reactive to proactive business models, incorporating maturing and emerging technologies, customizing and personalizing products, and accelerating speed to market while providing improved customer service.

Wearables Poised to Reshape Insurer-Insured Relationship

Boosted by the impending release of the Apple Watch, wearable devices have received a fair amount of attention recently Ė and with good reason. This emergent technology has the potential to alter the way the health insurance industry operates on a fundamental level.

Despite Valiant Efforts, Insurers' Consumer Ratings Drop

Insurers also are confronting waves of disruptive changes, including big data analytics, an aging population, ongoing economic uncertainty and the growing frequency and severity of natural disasters, which threaten to challenge and undermine businesses.

Why You Can't Take a Wrecking Ball to Your Legacy System

If you think of enterprises like collections of neighborhoods that need to be nurtured, you quickly see that architecture, not obliteration, is the key.

The Apple Bounce: Are Wearables Truly this Big?

I just donít believe it; only 720,000 Androidwear watches were sold in 2014. Apple has been amazingly successful in so many markets. Were they always first? No, a lot of products before. Were they always best? Again, no, superior devices have fallen.