MAXIMIZING AUTOMATION
Be proactive rather than reactive when
assessing your technology budget
By Wanda Shumaker
The reason most agencies adjust their technology budget is little more than a reaction to vendor upgrades coupled with a quick "temperature check" against Best Practices data.
When you're evaluating your technology budget (technology is a line item on your overall budget, isn't it?), what benchmarks do you use to gauge whether or not you're on track?
The extent to which technology influences our business--from digitized reference material to policy management to interactive e-commerce matters--makes the need for tactical and proactive planning and budgeting more crucial than ever. Yet the reason most agencies adjust their technology budget is little more than a reaction to vendor upgrades coupled with a quick "temperature check" against Best Practices data. In short, on many fronts, technology is still happening to the agency, not being driven by the agency.
Have a plan
Technology planning should be as important as any other strategic initiative in the agency. Few would argue that relationship management is paramount in today's frenetic market. As a result, maximizing the value of your data assets is critical. In order to do so, your agency may need to upgrade existing software or acquire new programs. It's a "spend money to make money" proposition. Still, too many agencies plan and budget only for the continuation of their current infrastructure management and give precious little thought to resource allocation for new initiatives that are truly meaningful in the context of client relationship enhancement and account development.
Why aren't agencies more proactive? The reasons are not surprising. The individuals who make up the technology staff of most agencies represent a hodgepodge of skill sets. Some organizations cannot bring themselves to devote a full-time technology director. Others have full-time technology staff, but management is either unwilling or unaware of the need to maintain involvement in significant technology initiatives.
The basics of "Best"
Regardless of how your internal technology staff is structured, the technology budget must be defined. Benchmark studies can be a good place to start. The most widely accepted budgeting standard for agencies is the IIAA's Best Practices Study. While this annual study has earned respect for its representation of common-sense financial tradition, the accumulation of information regarding technology expense should be carefully examined.
There are several reasons why a careful assessment is important. Under the "Expense Analysis" category, Best practices lumps together data processing expenses under the "Operating Expenses" subcategory. Aside from being a somewhat dated term, data processing does not fully address all expenses associated with technology. Individual agency practices also vary as to where certain expenses are captured. Best Practices asks what is spent on these primary resources:
* Hardware maintenance
* Lease costs
* Software support and maintenance agreements
In an effort to expand on what clearly was only part of the picture, Best Practices included at the end of the 2001 report a section that discussed overall "technology expense," which added the following to the Expense Analysis category:
* Depreciation and amortization
* Data communication lines (T1 lines, etc.)
* Training
* Web site
What's missing?
While the above represents the most common components of the technology structure, other matters should be considered. The most obvious missing piece is the technology salary expense, which is presently either not represented, or buried in the service staff salary. Even agencies that piggyback technology duties onto other staff positions are still incurring this expense, as time given to one cause is time taken away from another.
And other types of technology beyond the basic infrastructure create expense, and also often blur the lines of what really is "technology expense." For example, CD-ROM or online reference material such as SilverPlume, Rough Notes' Agency CD or Agency Online are included by some in the technology expense account category. Others post such expenditures under dues and subscriptions, and still others might post this expense to licenses and fees.
The costs associated with the agency Web site are also subject to wide interpretation in expense posting. Some consider this raw technology expense. Some post only the hosting fees to technology and others post all costs here. Still others charge development costs for various projects to anything from sales and advertising to public/customer relations.
The intent here is not to engage in a discussion on GAAP tenets, nor is it to debate where technology-related ancillary costs should be captured. While the ideal would be for the Best Practices Study to clarify and capture these specifics, it is difficult when even the Best Practices agencies report varying methods. Those responsible for technology budget justification in agencies should at least understand what is being captured and, until the industry and Best Practices can adjust for the changing times, strip away all but the apples-to-apples components to get a true comparison to the benchmark.
A benchmark is not a place to sit!
Keep in mind that Best Practices, as good an overall tool as it might be, is still a "backward glance." By the time it is available for analysis, the data is nearly a year old. With the breakneck pace of change in technology, it is as important to focus on where we are going as much as where we have been.
While the basic principles of profit margin should not be violated intentionally, it is also important not to get so wrapped up in "being Best" that we lose sight of our overall goals. An atypical one-time technology expense that also generates atypically large revenue potential in a following fiscal year (or years) could die an unnecessary death at the hands of a Best Practices purist. This is precisely why leadership-level involvement in technology planning is so significant--the "big picture" perspective.
Those who sit on the benchmark will likely be safe in the short term. Those who dare to reach beyond benchmarks raise the bar and lift the performance level of our entire industry. *
The author
Wanda Shumaker is a 20-year veteran of the insurance industry, beginning her career in an agency, then traveling as a trainer for a major software vendor. She has returned to the agency side of the business and is an assistant vice president and the automation manager for Conseco Risk Management,.Inc.