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1998-05-18 13:51:40


Budgets Tell All: The U.S. Won't Make the Deadline



Follow the money. Let it tell you what you need to know.

What it tells you is that the United States' private sector will not meet the deadline.

The story begins with a quote from a representative of EDS, which helps large companies fix their y2k problems. Fact: EDS is not compliant. Then it cites income figures from IBM's y2k repair division. IBM is not compliant.

We learn: "The nation’s 250 largest companies are expected to spend $33 billion on Year 2000 conversions, says Slovin. But to date, only 20 percent of that money has been spent." Let's see: at $1 per line, that's . . . hmmmm . . . 33 billion lines of code if repair prices stay low in the face of rising demand. Divide 33 billion by 250 and you get 130 million lines of code, on average, for each of the 250.

No firm has ever corrected 100 million lines of code, let alone 130 million.

Where are they in the repair process? Still in the early stages of code repair: 20% of the budgets. They must spend the other 80% before December 31, 1999, at the latest. But no large firm claims that it will not be compliant until the last day of 1999. They claim they will be ready for testing on December 31, 1998. Yet they have spent only 20% of their project money. Yet most of them began in 1995 or 1996. It has taken two years, minimum to spend 20% of their money. If they spend the next 80%, this will drive up wages, not fix code faster. The more programmers they hire, the slower the rate of repair. (On this point, see Fred Brooks's book, THE MYTH OF THE MAN MONTH.)

The figures do not add up. The largest 250 firms can't possibly make the deadline. Some may, but most won't.

The media's Party Line is that large companies will be in a good position, with mid-sized and small firms being in a bad position. This is utter nonsese, as the figures reveal. The biggest firms in the largest industries are doomed if y2k is a true threat. Only small firms that can revert to paper and pen systems, or Macintosh-based systems, will survive.


* * * * * * * *

In opening talks with prospective Year 2000 clients, Electronic Data Systems Corp.’s Tim Morton doesn’t mince words when breaking the harsh news: “Don’t plan on resolving all of your Year 2000 issues in time.” At this late date, time definitely is working against them.

“It’s the 80/20 rule,” says Morton, vice president of operations for EDS’ CIO Services 2000. “What are 20 percent of the applications that run 80 percent of the business? Let’s go after them first, and as time and resources permit, we’ll address the others.”

Despite the dim prognosis, companies are enlisting EDS and other integrators for Year 2000 help at a record-setting pace. EDS’ CIO Services 2000 business unit tallied seven new clients in the first quarter of 1998 totaling $26 million in contracts. And EDS officials expect that figure to increase in the second quarter as companies, realizing the increasing scope of Year 2000 problems, turn from their internal staff to outside vendors. Ernst & Young counts three new contracts for the same quarter, and $200 million in Y2K-related sales from October ’97-March ’98.

At IBM Global Services Year 2000 contracts have nearly tripled in the last six months, from 700 in September 1997 to about 2,000 in March 1998. . . .

“What happens when they get into this crunch mode, they start looking to outside help. That’s one of the things that’s contributing to this spike,” explains Malcolm Slovin, vice president and services director of performance engineering and measurement strategies at The META Group, the Stamford, Conn.-based research firm that conducted the study. Some 85 percent realize they’ve underestimated Year 2000 costs, according to the report.

The nation’s 250 largest companies are expected to spend $33 billion on Year 2000 conversions, says Slovin. But to date, only 20 percent of that money has been spent. . . .

Ralph Szygenda, CIO of General Motors Corp., recently revealed that while GM had a budget of over $500 million for Year 2000 compliance through December 1997, the company has spent only $40 million to date, according to Morton. . . .

But if a company finds itself looking for Y2K help after discovering it’s in critical condition, integrators won’t be shy about turning business away.

“They want to be with the winners, not the losers,” says META Group’s Slovin. “They’re making sure they can complete what they say they’re going to complete. If EDS came across a company with a lot of embedded systems that had not started doing work in Year 2000, they would probably pass it up simply because there would just be too much to do at this particular point.” . . .

When an integrator does take on a project, there are limited guarantees of Y2K compliance. In this second quarter of 1998, market research firm GartnerGroup says enterprises just signing deals for Year 2000 work will face contract language offering little to no warranties for work provided.

“I’ve seen very few organizations provide that warranty for Year 2000 compliance,” says EDS’ Morton. . . .

Numbers back up integrators’ positive outlook. The 10K reports reveal that companies have completed only 25 percent of the work on compliance, leaving a tremendous amount yet to be done, Bohner says.


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