Ties That Bind

Connecting the carrier's strategic planning with the operations side of the business is seen as a key to a successful budget process. The Hartford's property/casualty company has embarked on a significant and sophisticated strategic planning process over the last few years, reports Murchie. One reason for the success that has been achieved within IT is the process has been communicated throughout the executive team and support organizations. "The Hartford does a fair amount of strategic and capital investment and building new capabilities," says Murchie. "Things are well mapped and described in terms of how they affect the levers and the metrics that support the strategic plan." The Hartford has been explicit in mapping specific choices and measuring the performance of those choices. "We've invested a fair amount of time and effort at the senior leadership level aligning disparate initiatives across the organization and tracking the success of those initiatives," he says.

Colorado Farm Bureau Mutual Insurance schedules its strategic planning sessions more than 30 days prior to entering the budgeting process, indicates Bob Goldberg, vice president of technology. "That way, we can plan what items we're going to make capital improvements on for the following year and make sure we're all on the same page," he says. Colorado Farm Bureau's senior management team takes part in the planning session, spends several days talking about short- and long-term strategies, reviews prior years, and then goes forward, explains Goldberg.

Because the carrier is budgeting in the September time frame, Goldberg points out it is important to forecast what the company will do the remainder of the year. "That's always the big wild card when going through the budgeting process," he says. "As you are doing your budget [for the following year], you look at where you are going to finish this year so the budget accurately reflects that performance."

For a company the size of Colorado Farm Bureau, the main tools remain spreadsheets and calculators. "It is a relatively manual process, but that also has something to do with the number of people involved," comments Goldberg. "The size of the organization predicates that. If you have a multibillion-dollar company, I can't think of the number of people involved in the budgeting process. It changes the scale and the scope."

Goldberg believes his company's size makes it easier because the people budgeting generally know where those dollars are being spent. "As vice president of technology, I know where my expenditures are on a very regular basis," he says. It is not an exact science, though, he remarks.

The Hartford has invested in work management systems that allow the carrier to do capacity-level planning and forecasting, relates Murchie. Such investments do not yield an ROI because the investment is more qualitative than quantitative, but he contends the systems enable the carrier to be more predictive in forecasting. This also allows for more negotiations between business customers and IT from a standpoint of looking at IT's capacity to execute, making explicit choices as new initiatives come into play, and having a more robust conversation with internal customers, he adds. "There is a yield that may not be measured by income but could be measured in the sophistication by which IT engages the business through a financial lens," he says.

Many businesses are looking at ways to measure ROI, but Murchie believes the efficiency of IT is better measured by virtue of IT costs as a percent of written premium, the expense of maintenance, and the costs involved as various sourcing options are pursued. "All these things are being assessed or attempted," he says. "The more you are able to incorporate better tools into your forecast, planning, and budgeting process, the more you are able to execute against more ambitious financial objectives. The ROI may be measured in terms of a collection of strategic initiatives that are aimed at reducing your costs and making your organization more efficient, but the vehicle to do that is through more sophisticated resource-based planning."

ROI does impact budgets, agrees Karen Pauli, senior analyst in the insurance practice at TowerGroup. However, because competitive advantage is so intense and because upper-tier and midtier insurers recognize they have business leaders pushing for answers, decisions are being made to do certain projects without a concrete ROI, she says.

The budgeting process is not so much about having technology to add and subtract all the numbers, submits Pauli. Rather, it's more about presenting the business cases in order to get the IT dollars. "That's a laborious process for any carrier," she says. "Every single line of business has its agenda and its needs."

The IT people at market-leading carriers wind up dealing with the business heads, and the budgeting process becomes a dual attack on dollars, Pauli asserts. In the end, "the two of them come to an agreement and understand what the needs are. If you have an alignment between business and technology, you have a focused budget."

Murchie contends IT has assumed some strategic leadership within The Hartford. "It's fair to say the way IT does its budgeting and forecasting using technology is leading-edge for the company," he maintains, adding IT invested in those areas with the purpose of driving internal transformation.

The overall budget process still is a corporate initiative for The Hartford, so enhancing the process in terms of reducing the amount of time spent on budgeting is something that has to be addressed at a corporate level. The capabilities that have been created for IT at The Hartford allow the organization to look longer term and to deploy what the carrier calls "living planning." "In theory, you can snap a line at any point in time and provide a 2008 picture today that has a much higher level of confidence associated with it than in previous years," says Murchie. "That, in and of itself, will drive efficiency in the way we plan and budget and shorten the budget cycle. If it doesn't shorten the budget cycle, I guarantee it will allow more transparent choices for the business. That may not be measured in a reduction of the cycle time of the budget process, but I think it can be measured in regard to how informed and transparent those choices are. It's more of a service-level-type agreement relationship between IT and the business–better data and a transparency expedited by technology."

There is a fair number of older systems that are used in the IT finance organization to run budgets and reporting, Murchie explains, and there are challenges associated with integration. "That said, it's a pretty tight ship that's run from a financial standpoint," he says. "Data integrity is pretty good, and the reporting engines are robust, as well. There are areas we could improve–better integration could happen–but at the end of the day, the trains run on time, we close our books quickly, and we have good-integrity information we share internally and externally."

Technology is important in every area of a company, and the budgeting area is no exception. "If you go back five to 10 years, the technology wasn't all that strong in [the budgeting] area," says Babczenko. "You have organizations that have grown quickly and, through that growth, didn't have time to step back and look at the budget process holistically."

As with other fast-growing areas, the answers often have come in the form of point solutions and bandage approaches. "When [companies] do get a chance to step back to see how long the [budget] process is, it becomes more of a priority as [business leaders] look at the process and the organization," remarks Babczenko.

Murchie is optimistic for The Hartford's ability to further improve the planning and budget process, but there is a fair amount of change in the organization that would have to occur to make it happen. "From my vantage point here in IT finance, we can build some capabilities that would be leveraged to improve the process [throughout the carrier]," he says. "There are decisions that have to be made at the leadership level throughout the business [units] to drive that process improvement. I don't think people in general would characterize the budget process as particularly efficient. Once the [financial processes have] improved, you can run an efficient planning and budgeting process."