Context:
A mid-sized European insurer was facing mounting challenges in managing the costs of its IT function. With IT spend representing a significant share of operating expenses, executive management sought greater transparency into cost allocation and clearer levers for optimization. Traditional, top-down allocation methods obscured inefficiencies and limited the ability to prioritize strategic investments. At the same time, the CIO organization had to meet rising regulatory compliance demands while increasing agility in a highly competitive market.
The mandate was to adopt a more granular costing approach, assigning costs to specific IT activities, while aligning resources with business priorities such as enhancing the customer experience and integrating new digital solutions.
Approach:
We implemented the Activity-Based Costing (ABC) methodology to map the IT function’s activities and attribute costs with precision. The engagement unfolded in several key phases. We began with an in-depth audit of IT processes to identify core activities, infrastructure management, application development, systems maintenance, end-user support, and cybersecurity. Each activity was decomposed to determine the resources consumed, including personnel, software licenses, servers, and outsourced services.
We then worked with the IT teams to collect reliable data, integrating information from the ERP and existing project-management tools. An ABC model was developed to link costs to activities and, in turn, to the IT services delivered to the various business units (e.g., claims management, underwriting, customer relations). KPIs were defined to assess the performance and profitability of each activity.
To drive adoption, we conducted collaborative workshops with Finance leaders and IT teams to align the model with the company’s strategic objectives. An intuitive reporting interface was embedded in the existing business-intelligence platform, providing clear visibility of costs by activity and by service. Finally, a training plan was rolled out to build awareness of the ABC approach and to enable effective use of the new reports.
Results:
The implementation of the Activity-Based Costing (ABC) approach transformed cost management within the IT function. Over six months, the analysis revealed that 25% of IT spend was tied to low-value activities, notably excessive maintenance of legacy systems. This transparency enabled the reallocation of 15% of the IT budget to strategic initiatives, such as developing a digital customer platform, thereby improving the user experience.
Infrastructure operating costs were reduced by 12% by streamlining processes identified as inefficient, including redundant server management. Greater transparency also strengthened collaboration between IT and the business, with internal satisfaction increasing by 20%, as measured through surveys of user departments.
Finally, the ABC model strengthened the investment case to executive management, facilitating approval of a claims-management modernization program. Launched following the audit, the program reduced case processing times by 18%, enhancing the company’s competitiveness.