Repairing the Y2K problem is one of the most expensive, labor-intensive, time- consuming task mankind has ever faced. Y2K has spurred a vast mobilization of programmers, money and executive attention with few parallels in history. With only 432 days before the new century begins, many of the world's large corporations have moved hundreds of workers off their regular duties, hired many teams of technical consultants and earmarked millions of dollars for new electronic equipment. The Y2K glitch has become the top management concern and forcing the postponement or cancellation of other business projects. Just how much it costs to conquer the date problem is unclear. Here are a few estimates:

• US businesses - The Federal Reserve predicts that US businesses will have to spend at least $50 billion. - Tryaxys, a consulting firm that analyzed Securities and Exchange data estimates that the 500 biggest public US companies alone will have to spend about $49 billion.
• Federal Government - The Internal Revenue Service overall cost could be as high as $1 billion, a fourfold increase in the original $200 million cited to Congress in spring 1997. - The Federal Government whose price tag for repairs has increased steadily over the last year, must allocate at least $5 billion to fix its computers.
• World Wide - Industry analysts predict that the worldwide bill for the massive repair effort will come in between $300 billion and $600 billion.

CHALLENGES FOR KEY ECONOMIC SECTORS

Probabilities of Year 2000 damages The range of Y2K problems likely to occur is wide, as shown in the table below, with bad credit reports due to Y2K errors and cancellation of Y2K liability insurance leading the percentages and escheatment of bank accounts and death or injuries due to Y2K from the bottom.

Year 2000 problem ..................................................................Probability of occurrence

Bad credit reports due to Year 2000 errors ..............................70%

Cancellation of Year 2000 liability insurance .............................60%

Loss of local electric power (> 1 day) ......................................55%

Litigation against corporate officers.......................................... 55%

Loss of regional electric power (> 1 day)................................. 40%

Loss of international telephone services ...................................35%

Errors in 2000 tax reporting (1099 forms) ..............................35%

Errors with social security payments .......................................35%

Errors in first January paycheck .............................................30%

Errors or delays in tax refunds ...............................................30%

Delays or cancellations of airline flights ..................................25%

Loss of local telephone services ............................................20%

Errors with motor vehicle records ...........................................0%

Medical or hospital billing errors ...........................................20%

Manufacturing shut-downs (> 1 day) ....................................20%

Process control shut-downs (> 1day) ...................................20%

Reduction in stock values .....................................................20%

Errors in 2000 tax reporting (W2 forms) ..............................15%

Errors in bank account balances ..........................................15%

Disruption of stock market trading .......................................15%

Shut-down of pharmaceutical manufacturing ........................15%

Errors in hotel/motel reservations ........................................12%

Delays or cancellations of shipping .....................................10%

Errors in prescription dates ................................................10%

Delays in UPS, FedEx deliveries ........................................10%

Delays or cancellations of rail shipments .............................10%

Urban bankruptcy due to Year 2000 ..................................7%

Water shortages/rationing ...................................................7%

Corporate bankruptcy due to Year 2000 ............................5%

Food shortages/rationing ....................................................3%

Escheatment of bank accounts ............................................2%

Death or injuries due to Year 2000 .....................................1%.

(Source: Software Productivity Research, Burlington, Mass.)

None of us, in the public or private sector, are office islands when it comes to the Y2K challenge. Beware of the domino effect to the world economy. Federal agencies' failure to stay on schedule and remain within cost estimates for Y2K projects has boosted to 60% the odds of a global recession on the scale the one in the 1970's according to Edward Yardeni, chief economist at Deutsch Morgan Grenfell. Whether a company makes it through January 2000 unscathed by the Y2K computer bug will depend on the smooth functioning of computer systems at myriad other organizations. Consider the tangled web of business interrelationships that exist among companies. First, there are customers. Next, suppliers; vendors; financial service providers; insurance carriers; electric utilities; telecommunications, transportation networks andfederal, state and local government agencies. If the performance or dependability of one falters, the survival of your company could be at risk. Here is the problem: none of these EXTERNAL dependencies shows up in the millions of lines of code your company fixes and tests. One dependency gone wrong can jeopardize the stability of your firm. Consider the consequences on your cash flow if the overnight lock-box system fell apart. Or ask a production manager about just-in-time inventory management using undependable suppliers. If you're a retailer, consider the problem if embedded chips in point-of-sale terminals fail to operate or your EDI network crashes. Today's businesses and government agencies have developed an integrated independence through their information systems and computer-controlled processes. If one fails, there is a rapidly cascading effect on many others. Failure to address this integrated independence will compromise many Y2K projects.

As a result, the Y2K readiness of the nation's key economic sectors - specifically the telecommunication, energy, financial services, transportation industries has emerged as a priority for every one.

TELECOMMUNICATIONS

The telecommunications capability of the US is critical to our economic health and security. Each day, billions of dollars flow across state and national borders. The massive increase in electronic commerce underscores our economic dependence on a reliable system of interconnected telecommunications networks with the digital bits traveling through high bandwidth facilities being built throughout the world. Public safety is even more critical. Fire, police and ambulance services depend on a reliable telecommunication infrastructure to reach individuals in need of assistance. A number of critical social and regulatory goals could be derailed or at least suffer severe setbacks if computer systems tying together the world's networks are not ready to handle the Year 2000.

Just look at the failure of the Galaxy 4 satellite in May this year. Businesses suffered significant disruptions as paging operations, Internet access, and wire service news transmissions were shut down. We live in a high- tech world dependent on computers and high-bandwidth transmission technologies. The economic consequences of a disruption will be even more substantial by the Year 2000. Internet retailing, for example, generated about $3 billion in sales last year. By the Year 2000, some estimates project sales to reach $16 billion.

As we approach the new millennium, it is vital that these disruptions in the communications area be minimized. The use of newer, and faster telecom technologies, coupled with the promotion of policies that foster new carriers with their own networks, render the US increasingly vulnerable to the consequences of a Year 2000 breakdown.

For telephone companies, fixing the date problem is proving to be a Herculean undertaking. Many billing software systems, which have tens of millions of lines of computer code, require comprehensive revisions. Microchips embedded in electronic switches and other equipment need testing. Interconnection points with other carriers must be examined. Embedded systems contain microprocessors or microcontrollers that perform date-related functions using the same programming logic as mainframes and, therefore, may not perform properly when they encounter 2000 dates. A piece of equipment that may appear as a black box to an end-user, contains a multitude of smaller embedded systems from different vendors inside it. Each "black box" can have up to ten layers of varying technology. To find out if a suspect device is Y2K compliant, many people have to be consulted for each "black box" component in order to cover these layers of technology. Vendor statements are seldom available or reliable. The US largest phone companies, including AT&T Corp. and Bell Atlantic Corp. say they are well along in their repair work. AT&T has repaired 72 per cent of the affected systems. The glitch affects less than 20 per cent of the company's systems and less than 1 per cent of the company's total computer code needs fixing. Still the project is not cheap. AT&T spent $113 million on the effort in 1997 and plans to spend another $350 million this year, much of it for testing. The Federal Communications Commission expects large carriers such as AT&T to enter the new millenium largely unscathed, but regulatory officials say they are concerned about how many of the country's 1,300 small rural phone companies, many of which do not have a dedicated Y2K staff. The FCC and industry executives are alarmed by the laggardly rate of repairs in many other countries. The Gartner Group estimates that as many as 10 per cent of the world's 800 million phone lines will be connected to non Y2K-compliant phone networks.

ENERGY

Utility companies, like their telecommunications counterparts, face distinct challenges in fixing mainframe software, finding embedded devices in power plants and ensuring that the transmission networks they share with other firms work properly. For most companies, the mainframe side of the equation has been relatively straigthforward, they started working on the issue more than a year ago and have a clear idea of what needs to be done. It's the embedded chips that give cause for alarm: a typical coal-fired electric power plant can have hundreds of devices that rely on microchips, from temperature regulators to fire alarms. Washington Gas Light Co., for example has found about 300 different types of embedded systems in its storage, distribution and metering facilities. But the company is still contacting manufacturers and performing tests to see what will not work. Only two of the 10 largest US utility companies have fully completed checking their embedded systems, according to a survey recently conducted by a Senate committee. The question is not whether there will be power disruptions, but how severe the disruptions are going to be.

BANKING AND FINANCIAL

Of the country's critical sectors, the financial services industry is the farthest ahead in tackling the date glitch. In some cases the problem was addressed years ago because the need to issue loans and trade securities that expire 30 years in the future. On other systems, banks started making fixes in the early 1990s, realizing the importance of date-related calculations to their day-to-day operations. - NationBank, for example, started checking its systems in October 1995. It has devoted 300 full-time employees and 1,900 part-timers to the task and is halfway through the repair work and expects to be finished by the end of the year. Among the systems that need close attention are the automateed teller machines that need fixes in hardware and software. - Crestar Financial Corp. has assigned 200 people to sift through 10 million lines of computer code vital to the bank's day-to-day operations. "This is bigger than any other corporate initiative in our history, all of our forces have been mobilized to one single focus" said Crestar's project manager. - Some banks have already purchased "time machines" to simulate the date change from Dec. 31, 1999, to Jan. 1, 2000, including IBM MVS-based mainframes and RS/6000 servers and Tandem Computer Corp. machines, to use in their testing. Large banks' structured planning approach has left little room for error. And despite the earnings pressure of an Asian recession, their Y2K budget cannot be trimmed. - The Federal Reserve has started testing the Fed Wire system with banks since June 1998. The Fed Wire: a network used for final settlements of transactions between major financial institutions. The network handles an average of $1 trillion a day. The Automated Clearing House: a nationwide electronic fund transfer system developed jointly by the private sector and the Fed in the early 1970s is also being tested. Fed officials said large U.S. banks, those with assets exceeding $1 billion, are way ahead of smaller institutions in terms of fixing the Y2K bug. Smaller banks, whose dependency on third party service providers to conduct their daily operations, are having a harder time coping with the problem. But Fed regulators said third party vendors have shaped up over the last few months, showing noticeable improvements in their strategies to fix the millennium bug.

- On Wall Street, under the auspice of the Securities Industry Association, seven securities firms teamed together to conduct a series of year 2000 tests designed to ensure that investors will be able to trade safely after Jan. 01, 2000. They shared data on mortgage-backed securities trades hosted on an IBM system/390 mainframe. Trades were dated Dec. 31, 1999 and settled in Jan. and Feb. 2000. The SIA says overall, securities firms will spend around $5 billion on Y2K projects.

TRANSPORTATION

Railroads If the trains don't run, cities will not eat and coal-fired power plants will run out of coal in 30 to 45 days. The railroads are vital to the survival of the US economy. From a railroad perspective, Y2K efforts focus primarily on two critical areas: safety and service continuity. The rail industry's Y2K efforts in safety-critical areas address mainframe computer systems, decision support systems, and a variety of components supplied by vendors, including embedded devices. The railroads have researched and tested their signals and highway grade crossing devices. Their results so far reveal that the safety-critical aspects of signals and grade crossing devices do not use date calculations. Because of this they are not subject to the sort of Y2K problems that affect credit cards, telephone systems, and older mainframe computer programs. Service continuity is a major concern to the rail industry and to its customers due to the tremendous amount of rail traffic which is handled by two or more railroads in inter-line movements. At a recent meeting the Federal Railroad Administration one key point made was that operations at large railroads in particular depend on information technology. For this reason, railroads are not taking the chance that they will be able to continue to operate at current levels without addressing the potential for Y2K problems. Efforts to address Y2K related problems have been underway at railroads for the past few years. They are now doing the remediation task. One railroad estimates that 3 to 4 percent of their core mainframe lines of code need remediation, and testing to ensure that it will perform as required before, during, and after the century change. The last stage is contingency planning. Railroads have identified the need to develop detailed contingency plans that can be activated if required. While most Y2K work is performed at the individual railroads, there are supportive activities at the industry level. Total expenditures on Y2K related activities are expected to be in the hundreds of millions across the American Association of Railroads member railroads.

Airlines Making the skies safe for Jan. 01, 2000 is no small task. There are 169,000 take-offs and landings each day in the U.S. With 23 million lines of code, 50 computer languages and more than 250 antiquated computer systems, the FAA has a difficult road ahead. The biggest problem will be the possible shutdown of the HOST computer which ties together the 20 air traffic control centers in the U.S. that control aircraft after they leave the airports. HOST computer analyzes and collates radar data for the air traffic control system. It is also a critical component for the backup radar source for Terminal Approach Facilities. The Y2K threat exists in the HOST microcode, which is used to control the inner processes of the computer. The problem goes far beyond the HOST because HOST interfaces with a multitude of other systems. If even one system generates erroneous data, it could have serious implications on all other systems with which it interacts, and therefore jeopardizes the safety of the flying public. The implications are huge for both domestic and international air travel. The FAA's authority stretches from the western Atlantic to within 500 miles of Tokyo (55 percent of the world's air traffic). The shutdown will bankrupt the U.S. airline industry. Similar airport shutdowns in other nations will bankrupt their airline industries. The travel industry will face widespread bankruptcies. The banks will suffer enormous losses when their loans to the airline industry go bad. While fixing the code, The Federal Aviation Administration says will upgrade the air traffic control system to new equipment. Stage I will arrive in September, 2000. The whole program will be implemented between then and 2005. The FAA will test the system for two years and refine the equipment and procedures. If all goes well, the total cost will remain within the approximate of $5 billion.

KLM, the Dutch airline, reported this statistic recently: up to 160 date- dependent systems to repair per airplane. KLM has concerns over Y2K. In guarded language, it says the planes will not fly if there is any danger. There will be no KLM planes "falling from the sky." Or any other airline. They will just not take off. KLM is drawing up a list of no-fly zones around the world where ground control systems will not be millennium compliant. The carrier has set up the Global Millennium Compliance Forum with partner airlines Continental, North Western and Alitalia, to identify global Y2K black spots. Africa, Asia, South America, and parts of the US are believed to be areas over which airlines will refuse to fly on 31 December 1999. KLM pilots are practising navigation without ground control, in preparation for dysfunctional air traffic control systems.

The insurance industry is threatening not to insure flights in the year 2000 if the accident is Y2K related. The Aviation Insurance Officers Association and Lloyds' Aviation Underwriters have jointly drafted an exclusion clause, to be agreed by members of the London aviation market. The Aviation insurers have issued the airlines with questionnaires on their compliance programs. Here is a survey of the airlines:

What best represents the status of Year 2000 compliance for hardware and system software in your airline (mark one only):

• About 50% compliant ............................17 (39%)
• About 25% compliant ............................14 (32%)
• Not compliant .........................................6 (14%)
• Fully Compliant .......................................5 (11%)
• Don't know .............................................2 (5%)

A world without airlines: it will be a very different world.

Baltimore, MD.  Sun, 25 Oct 1998
VACETS Column