News Analysis: Counting the cost of the millennium bug

The real cost of the year 2000 date change problem could turn out to be as little as #3 billion

The multibillion pound millennium time bomb question has bombarded everyone in the channel. With less than 1,000 days to go until computer Armageddon, the question of how much UK businesses will have to spend on updating systems to cope is beginning to wear thin.

The problem is simple enough. Old systems use two-digit rather than four-digit codes to indicate the year in dates, so the change from 99 to 00 will be like going back a century. The results of some calculations will be nonsensical as, for example, 99 will be subtracted from 00 giving a difference of minus 99 instead of one year.

The fact that it will affect every computer system and business and therefore touch on everybody?s day-to-day life is not in dispute. But the cost and the question of who will have to foot the bill are. The urgency with which the government agency Taskforce 2000 aims to impress the magnitude of the problem on UK business directors was clear when it estimated it would cost industry #31 billion to make the changes. It would also require an additional workforce of 260,000 programmers ? about the same amount that are already employed in IT.

But the panic may have been diluted by last week?s admission by the agency?s executive director, Robert Guenier, that the #31 billion figure belonged to ?cloud cuckoo land? because neither the resources nor the skill pool would be available.

The Taskforce estimation has been further undermined by the Holway report, which puts a #10 billion price tag on the change ? a cost that can be cut to #3 billion as #7 billion will come from organisations? existing IT budgets. ?Either Guenier has overestimated the need by a major extent or we are in for a catastrophe,? said report author Richard Holway.

But Taskforce 2000 claimed its estimate of #31 billion is what it would cost industry to do the job properly. ?I am not saying this is what we will spend. The idea that we can spend that money is cloud cuckoo land. We won?t know the real cost until it?s all over,? said Guenier.

The group?s sole aim is to raise awareness of the millennium issue with senior decision-makers in the UK. The group?s concern is that businesses are still complacent about the very real threat to their businesses and are not getting on with implementing the changes ? only about nine per cent of organisations have completed an audit and just 28 per cent of senior managers are aware of the problem.

?We don?t have time to come up with an accurate figure. So don?t focus on the #31 billion figure. Focus on the fact that it?s not something you can afford to ignore,? said Tom Glasson, Taskforce 2000 assistant executive director.

While the agency has conducted its research by questioning IT and business directors in public and private sector organisations, Holway?s findings are the result of surveying the workload and technical problems of the suppliers that are saddled with making their software 2000 compliant. Holway quotes #10 billion, a total supplied by the industry-backed taskforce Year 2000 Conference Europe, as a more accurate benchmark.

?From the supplier?s point of view, #10 billion seems to us to be the best researched and most likely figure. IT expenditure is forecast to total well over #100 billion so the cost of year 2000 compliance is less than 10 per cent of the total IT budget.?

Of course, the millennium presents massive opportunities for software suppliers, some of which will over-hype the issue to scare customers into rushing into purchases. Holway predicts a historically high growth level in the UK IT market in the run up to 2000. IT demand will be further fuelled by the introduction of the euro, growing use of the internet and intranets, and rising use of PCs in the home and home offices.

?In some cases demand will outstrip supply. Indeed, IT services will again be the star performer, registering double digit growth through to 2000,? said the report. Total expenditure on IT will rise about seven per cent, from #29.6 billion in 1996 to #38.3 billion in 2000.

But the industry will pay heavily for its star performance in the early years of the next century, and Holway cites history as his guide. The introduction of decimal currency in 1971 and the start of electronic trading on the London Stock Exchange in 1986 both prompted an IT boom which was followed by a major IT crash. ?Event driven booms in IT have always been followed by recession. Everyone brings forward their expenditure,? Holway said.

What is more there will be a pool of IT staff trained in the recruitment programmes of the late 90s, but budgets will be cut. ?If history has any lesson, it?s a recipe for the biggest recession and wipe out of IT services companies of all time,? added Holway. If he is to be believed, the big crash will not be in the realm of the users, but in the industry itself.