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Math lesson: Is there ROI for Core Systems Replacement?

A sharp IT professional recently argued with his colleagues that there is no cost-based return on investment argument that favours replacement for core insurance administration systems.  His contention was that there are lots of good reasons, but none that are cheaper than maintaining the old beast.

This sounded just contrarian enough that it might be right.  We did a little digging and found support for it from a Joe McKendrick, a respected consultant and author, who found that ‘Legacy System Modernization’ is finding its way to top level in lists of major 2011 projects.  McKendrick comments in a recent blog that this ranking is due to the critical nature of core systems for any other initiative.  In regards to proposals that legacy lack the agility that business needs, McKendrick writes: “Legacy systems weren’t designed for agility, responsiveness and analytics, but there are a number of tools and approaches that will bring legacy applications and data into the Web- and service-oriented worlds.”

Part of this may be how ROI calculated.  It may be cheaper to simply maintain old systems by putting more add-ons and manual processes.  But is it effective when there are new business opportunities dependent on complex analysis of  historical data in a compressed time frame?  And will the old systems support meet customer service expectations?

Regardless, it is thought provoking and highlights the need for careful measurement and benchmarking.  Modern Core Technology is one of the major themes of the 2011 Insurance-Canada Technology Conference, and there will be several sessions addressing benefits, value analysis, measurement, and accountability for core systems modernization and replacement.  Check out the Agenda at a Glance, and look for sessions marked with Technology, Policy Administration, and Claims.

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