RMIS-Web Risk & Insurance RMIS Article

"RMIS/Technology"

by David P. Duden

April 1, 1998

How Much Will It Cost ?

How many times has the question of cost been injected into the selection of a new or upgraded risk management information System? Certainly this issue needs to be addressed, but let's hope it's not the primary factor in your decision on RMIS issues.

With decreasing budgets for systems and more complexity in system deployment, the cost factor constantly changes the direction and often the results of a RMIS selection or upgrade. We can no longer look at the size of the hardware to determine the price level. Many vendors actually consider performing a detailed pricing estimation to be the first stage of implementation. This informs the vendor of any unique needs and puts more logic into the pricing estimate.

The overall price of our RMIS solutions is not a factor if we have the cost-justification developed with real numbers. The cost of operating our current environment vs. the estimated cost of a new platform is an easy sell. Looking at the efficiencies gained by a new RMIS is more difficult. For example, if our current RMIS creates data errors, how much time are we spending fixing those errors and how many errors remain in our database? These types of questions are much more difficult to measure.

Year 2000 issues have given us another way of looking at cost. Measure the number of lines of code that need to be fixed and the skyrocketing price of programmers to solve the problem. These numbers can make the price of a new system seem much more reasonable.

Have we been spoiled in the RMIS industry by new low-cost vendors trying to get in the marketplace by “buying the business”? Have our other service providers lowered the value of systems by providing them “free” or at greatly reduced prices? Unfortunately they are only “free” if we continue to pay the other fees, premiums, etc., to our servicing companies. These solutions integrated with other services might be the answer for you -- if they fit the budget! Will there be an emergence of new vendors without the baggage of legacy systems who will capture the market? Who is the dominant player in the RMIS arena? These are difficult questions .

I believe it is safe to say that the price wars are over. When it comes to trying to provide the cheapest RMIS solutions, there are no winners. The RMIS vendor does not generate enough revenue to maintain and further enhance the product, while the customer must pay for another data conversion, another implementation of new software when the “cheap” company does not exist anymore. Many RMIS providers are looking at the possibility of annual license fees to fuel their increased development costs, so you might consider the wisdom of that old sales phrase: Buy now!

But look at all the categories of RMIS costs when analyzing a system; hardware requirements, software, installation, training, customizing programs, data conversion, and integration. Outside of hardware costs that seem to go down everyday, generally the costs are increasing. The costs of implementation often times are three to four times the costs of software. There are also many risk management information systems in specialized areas, such as data capture and data reporting. The integration costs of these peripheral products can often exceed the cost of the software itself.

As long as the value continues to rise in our systems, the higher prices will be justified. Increased functionality will include a greater integration with other enterprise-wide systems. Foe example, the use of web-enabled tools to capture and share information will certainly add to the value of our RMIS; and it should be cheaper, too.

David P. Duden is the National RMIS Practice Leader for the RMISLab, an independent RMIS testing division of Deloitte & Touche LLP. in Hartford, Conn.