National health insurer Medibank Private has been forced to overhaul its business system renewal (BSR) program at a cost of $26 million.

The BSR program began last year and involves the replacement of Medibank's 20-year-old core business infrastructure to provide a new generation of IT.

A review of the program by Medibank's board of directors found it isn't likely to meet its original objectives or timetable as a single-step implementation.

As a result the program will shift from one large project to a more specialized and staged approach which means original deadlines will not be met.

According to the organization's annual report, "comprehensive analysis, high-level design and detailed planning" was undertaken in the 2005/06 financial year to "adopt a phased, progressive implementation of new IT systems, rather than the previously identified single-step implementation process".

While the company conceded a staged method will result in a longer implementation period, it believes it is a more prudent approach and will better manage delivery risk, including "organizational and member impact".

This change will not come without significant cost, however, with the annual report stating an "impairment of the asset for the year of $26,135,000".

As a result of the changes, Medibank anticipates the BSR program will start to impact positively on its day-to-day business in the 2008 financial year.

"BSR will streamline claims processing and the overall management of a large and diversified portfolio of business activities, and enable us to bring new products to market with greater speed and certainty," according to the company.

Medibank Private chief information officer (CIO) Kerry Crompton told Computerworld a phased implementation removes delivery risk for the business.

Crompton said renewal of Medibank's technology systems will create savings through improved efficiencies, which improves member value by taking pressure off future premium growth.

"BSR is one part of a bigger IT strategy," he said. "The whole IT strategy is looking at how we step the IT function from being a functional response to business needs to a culture of IT-enabled innovation in the organization."

In addition to the costs associated with the BSR program change, Medibank has also incurred significant software expenses resulting from updating its financial, core computer, and legacy systems.

These costs amounted to slightly over $8 million, including software depreciation expenses of $895,000, assets worth about $7 million written off and IT expenses of $155,000.