SIDEBAR:How to Make the Case for Legacy System Replacement

Investing in risk management or system replacement can be a tough sell to senior leadership at many companies. After all, replacing just one old system can carry a multimillion-dollar price tag.

To overcome this very common reluctance to invest in IT, CIOs must make the case that the legacy system is critical to the company's operations and that its failure could jeopardize the company's success. Veteran CIOs such as John Parker of AG Edwards & Sons advise performing a cost-benefit analysis that includes not only the costs of replacing legacy systems but also the cost of not mitigating the risk of a systems crash.

"That's where the business case is," Parker says. Comair's cost for not replacing its crew management system, for example, was the shutdown of the business for several days and a loss of $US20 million in operating costs and revenue. In addition, there can be many potential benefits to replacing legacy systems - such as lower operational and maintenance costs, better customer service, increased system integration and adaptability, or even increased revenue.

Kevin Murray made such a case for legacy system replacement when he was an IT executive at insurance company AIG in 2002. When making his business case, Murray presented the costs of a potential failure to the legacy system along with the high maintenance costs the company was paying to keep those systems running. He balanced that sum against the cost of replacing the system. "I knew our total cost of ownership would go way down and our speed to market would go way up," says Murray.

His business case hit home with AIG's executives. "Our CEO and our board of directors' jaws dropped. They saw what we had been spending and that we could get 30 percent savings by moving to a newer technology," says Murray. "It worked very well."

While CIOs should include risk analysis in any business case they make, they should also include the tangible benefits of replacement systems. "Flexibility and costs savings can be the straw that breaks the camel's back," says Murray, who's now putting together a similar case for legacy replacement as CIO of AXA.

CIOs who don't make the case will probably find themselves replacing their risky legacy systems at some point down the road anyway. "Once the worse-case scenario materializes and you haven't explored these kinds of options, you can get into desperation mode," Parker says. "Then you have to make decisions quickly to move off a platform, and most of them won't be well thought-out. It's a lot better to move strategically to replace legacy systems than to have to respond tactically to a system failure.