Think Like a CFO, Part II: Formulating Answers

After years of relative autonomy, senior IT executives at insurance companies are finding themselves increasingly under the thumb of tech-savvy CFOs charged with reducing costs. To succeed in this new environment, CIOs must prepare to address tough questions that go beyond the traditional IT domain.

In the first installment of this article, we argued that today's CFOs are more comfortable than their predecessors with technology and more inclined to challenge IT professionals with tough questions before approving investment ideas. In this installment, we suggest methods of formulating answers to these questions.

What is the risk that this investment will be a technical success but a business failure?

To an underwriter, success means a better, faster method of assessing and classifying risks. To a claims adjuster, it may mean easier access to policy and claim data. It is axiomatic that successful IT project management requires ruthless control of scope. Unfortunately, "controlling scope" all too often means eliminating some of the most compelling benefits on which a business case was originally based. The best answer to this question is that the business case itself will be managed as a deliverable of the project and that decisions that materially affect it will be brought to the CFO or a designee for approval.

What costs might the business bear as a result of this project that are not quantified in the business case?

To allay a CFO's concern that he/she lacks the benefit of important facts, make sure your business case addresses planned impacts and risks to all stakeholders - employees, customers, suppliers, regulators, and shareholders. This is an excellent test of the comprehensiveness of a business case.

Is this project simplifying or complicating our IT architecture?

Experience has taught CFOs that actions with short-term benefits can have longer-term costs. The advent of client-server computing in the late 1980s and early 1990s saw many insurance companies move application logic off the mainframe, splitting it across enterprise, departmental, and personal computers. Today's CFO is aware that as often as not, this move impaired the company's ability to make subsequent enhancements quickly and cost-effectively. The answer to this question is a blueprint with a specific role for the project in advancing the architecture toward a desired end-state.

How can I be sure we are capable of executing on this project?

Much of the excitement around new projects in IT organizations is based on the opportunity to build new skills. This tends to be at odds with the business desire to complete projects quickly and at minimum risk. A good CFO will insist on having a resource plan that is realistic regarding the capabilities of the existing IT organization. Such plans explicitly identify skill gaps and make appropriate use of new hires, systems integrators, outsource partners, and contractors to address them.

How will I know if this project goes "off the rails" and needs intervention to get back on track?

The typical CFO is a believer in the power of measurement. Presenting your plan in the form of measures, with expected values at various points in time spelled out, will help to convince a CFO that he/she will know if and when intervention is required to get things back on track.

Are there alternatives to this investment that could produce the same business benefit at lower risk?

No business better understands the consequences of poor risk management than an insurance company. Before approving a technology investment, today's insurance company CFO will want to know that a full set of alternatives was considered and that no other alternative produced a similar benefit at a lower mix of cost and risk. To be credible, be sure to be comprehensive in your review of alternatives.

What are the business consequences of doing nothing?

In a typical company, there are far more good ideas than can be funded in any given year, regardless of how compelling the benefits of any one may be. The projects most likely to be approved are those that impact on a company's competitive position or on other important ventures. Having a list of each will speed the path to approval.

This Q&A should reinforce the point made earlier that an activist CFO can help an IT organization to do its own job better. It also highlights a weakness to which most IT organizations should confess: the desire to keep outsiders from understanding too much about technology, viewing the business professional as more threat than partner. This attitude may have been tolerated in the past, when insurance executives were willing - in many cases eager - to abdicate responsibility for IT decision-making. It is plainly tolerated no longer. Absent a clear understanding of costs, benefits and risks, today's CFO is content to pass on opportunities to improve business performance that call for significant investment in technology.

It would be a shame if the failure of some IT organizations to partner with business executives, combined with general business skepticism about IT in the wake of the spending binge of the 1990s, were to short-circuit promising investment ideas. For all its perceived shortcomings, IT is still the source of far more than its fair share of the innovation that takes place in insurance companies.

Russell J. Pass ([email protected]) is a Partner with Bridge Strategy Group, a Chicago-based management consulting firm focused on serving the insurance industry.