InformationWeek

And Now For The Bad News

By Bob Violino and Bruce Caldwell
Issue date: April 21, 1997

One significant and potentially harmful side of the year 2000 problem: It's forcing organizations to divert money and resources. This, in turn, is causing some IS managers to delay projects-including infrastructure improvements-indefinitely.

In an InformationWeek survey of 100 IS chiefs, 16% say fixing the year 2000 problem has already delayed IT projects. Of those IS chiefs, more than 40% say the delays could jeopardize the success of those projects. More than half of those surveyed say the delays could have an impact on their organization's ability to compete. And nearly 15% expect to cancel IT projects due to year 2000 work in the next year.

Year 2000 projects are drawing people and dollars away from other operations. Nearly 70% of the companies in the IW survey are reallocating IT spending and reassigning IS personnel to support year 2000 projects. Organizations are delaying or canceling "anything that's expendable, such as upgrading to higher software releases," says Joel Goldhammer, an Alexandria, Va., VP for management consulting firm A.T. Kearney.

In Washington, where funding must be appropriated on a yearly basis, the impact of year 2000 work is being felt at all levels of government. "It's likely that some major modernization initiatives will lose out," says Joel Willemssen, director of information resources management at the General Accounting Office, the audit arm of Congress.

One of the hardest-hit federal agencies could be the Internal Revenue Service. It's already plagued by problems with its multibillion-dollar systems modernization program. Yet CIO Arthur Gross recently told Congress that the IRS expects to move 300 full-time IS employees from other assignments to deal with the conversion of more than 100 million lines of code in nearly 50,000 applications. He calls the year 2000 problem the "highest priority for the IRS," and has told Congress that moving money and people to year 2000 projects will this year "result in deferral of all but critical and legislatively mandated systems changes."

Database Delays
At the local lev el, year 2000 work has forced the government of Contra Costa County, Calif., to delay updating a database of criminal-justice records. "We're trying to figure out how we can do other IT projects and year 2000 work at the same time," says CIO Steve Steinbrecher. He has staffers rotating on and off year 2000 work to keep essential IS functions running.

Year 2000 fixes will take a significant bite out of many organizations' IS budgets. A survey of 250 large U.S. companies by the Society for Information Management (SIM) found that nearly 30% of total IT spending over the next three years will be channeled to year 2000 conversion projects. Where will the money come from? About 40% of those surveyed cited regular IS maintenance budgets. Slightly more than one-third said it will come from regular IS development budgets, while 14% cited special year 2000 budgets. "These are only preliminary numbers," notes Leon Kappelman, associate professor of business computing at the University of North Texas in Dallas and co- chairman of SIM's year 2000 working group. "Many companies don't yet have year 2000 project budgets based on actual inventories and assessments."

Kappelman's best guess is that fixing the year 2000 problem will cost medium-size and large companies an average of 15% to 20% a year from their total IS budgets. "Things will have to be sacrificed," he says.

At companies that seriously rely on outsourcing for core systems, IT projects are being put on hold as their service providers focus on year 2000 fixes. "Any work they do on year 2000 diverts resources from their normal workflow," says Goldhammer of A.T. Kearney.

Those companies that got started early on year 2000 work seem to be faring best. MasterCard International in New York began its year 2000 efforts in 1994; now the only IT initiatives that will be put on hold are "nice-to-have but not critical types of things like minor modifications to internal processing," says Rob Reeg, senior VP of systems development.

Similarly, while year 2000 wor k at Trigon Blue Cross/Blue Shield in Richmond, Va., has tied up key systems as the company converts them, "we started long ago enough that we're balancing it with other key projects and can make some trade-offs," says Dan Clark, director of application services.

Still, the hardest work-and the biggest impact on other projects-could still lie ahead. Testing code after year 2000 fixes are made will be the largest, most expensive part of the job, consultants say. Meta Group, a Stamford, Conn., consulting firm, thinks testing will account for 60% of all year 2000 costs, while inventory assessment and actual fixes account for 20% each. "It's staggering," says Rich Evans, a Meta Group research analyst.

That's worrying managers at Spartan Stores Inc. in Grand Rapids, Mich., a $2.7 billion grocery wholesaler. They're sending packets of code offshore to be converted, says Patrick Cox, Spartan's year 2000 project manager. "When it comes back, we'll have to call in more experienced people to test it," he says. "That's when this is going to slap everyone in the face."

The impact of year 2000 projects is reaching beyond the IS department. To free up workers for year 2000 tasks, the Department of Energy's Rocky Flats Environmental Technology Center in Rocky Flats, Colo., has had to pull people off nuclear waste cleanups. "Those projects," says Dee Jensen, the center's CIO, "could take a major hit."

For complete year 2000 survey results, go to techweb.cmp.com/iw/627/yr2.htm and be sure to visit our Year 2000 Resource Center for more information

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