Who will pay the bills?

There's one thing that both corporations and governments around the world now understand about the Year 2000 technology problem: addressing the glitch isn't cheap.

Technology experts, corporate executives, and government officials agree that as 2000 nears, the funds international economies must allocate to repair the computer problem will continue to grow right up until--and in some cases beyond--the turn of the millennium.

Globally, the technological cost to handle the computer problem ranges anywhere between $300 billion and $800 billion, with the total cost now estimated at $1.5 trillion, according to estimates from various analysts.

Because of the computer-based business infrastructure of the global economy, where embedded microprocessors are omnipresent, and because the evaluation, testing, and replacement of such devices is an expensive process, the cost to address the Year 2000 glitch has been compared to major natural catastrophes and medium-scale wars.

In the past year or so, as more corporations and government agencies in the United States have begun disclosing the Y2K status of their systems and the price of fixing them, cost estimates have risen sharply.

Take the U.S. government, for instance. In the latest Clinton administration report on the federal government's Y2K conversion progress, agencies estimated that they will spend $6.4 billion fixing the problem from 1996 through fiscal 2000, an increase of $1 billion from the August 1998 estimate of $5.4 billion.

The latest government increase in the estimated

Year 2000: An expensive date

Global costs: worldwide total Y2K spending, $1 trillion to $2 trillion worldwide total IT Y2K spending, $300 billion to $600 billion -- Gartner Group

Cost for a large government: United States: $6.4 billion -- U.S. Office of Management and Budget

Cost for a small government: Jamaica: $27.4 million -- Reuters

Cost for a large company: $200 million to $400 million -- U.S. Securities and Exchange Commission

Cost for a small company: $1,000 to $5,000 -- U.S. Securities and Exchange Commission

Total private sector IT spending for 1999: $52 billion -- NationsBanc Montgomery Securities

cost to convert agency systems follows a trend since March of last year, when the administration reported that the total expenditures needed would be $800 million more than their original estimate of $3.9 billion. Then in May, the estimate rose from $4.7 billion to $5 billion. By August, the estimate had climbed to $5.4 billion.

As reported earlier, Sen. Robert Bennett (R-Utah), the chairman of the Senate's Special Committee on the Year 2000 Technology Problem, said the final price tag for fixing government computers may be as much as $10 billion to $12 billion.

And federal officials aren't the only ones dealing with skyrocketing Y2K costs.

Edward Yardeni, chief economist for Deutsche Bank Securities and economic forecaster, has been watching and analyzing Securities Exchange Commission Y2K disclosure statements and has concluded that corporate spending on the problem is also rising considerably.

In his latest study of Y2K disclosures filed in the third quarter of 1998, he found that estimates have increased by a "whopping" 26 percent on average for the 140 companies in the S&P 500 that included the number in their annual reports at the beginning of the year and again in their third-quarter filings.

Although Y2K remedies are requiring a lot more money than executives had expected, Yardeni said other projects tend not to be affected significantly by the increases.

"My sense is that IT budgets are so fat these days," he said. "Clearly, work on Y2K will be done at the expense of some of the other IT projects, but not at the expense of a company's revenues."

As budgets grow and both money and time become short, Yardeni added that he wouldn't be surprised to see companies working to do more unorthodox things to meet the deadline in the black.

"As we come around the bend here, I wouldn't be surprised to see IT managers doing things like networking PCs together to handle some of the other work that noncompliant systems usually do," he said.

Lou Marcoccio, director of Year 2000 research at the Gartner Group, said that by the end of this year "outside" costs linked to the millennium bug will be two to three times larger than spending on direct technological solutions.

Marcoccio defines outside spending as those costs associated with risk assessment of business partners, investors, products, and services, as well as public relations regarding the problem.

"In IT budgets, they can clearly define what projects are going to take place and at what cost," he said. "Outside of IT it is not as obvious. A company might be less likely to modernize a certain component of its business," for example, because it has to spend more on publicizing Y2K status reports.

The cost to handle the Y2K glitch isn't only on the minds of budget crunchers in the White House or in board rooms in the United States and abroad.

The White House's John Koskinen on Y2K impact. (courtesy of CNET TV) 1.5M

In fact, in November the National Association of Counties commissioned the firm National Research to conduct a random survey of county governments on the status of their Y2K activities. That survey concluded that it will cost all counties in the nation nearly $1.7 billion to achieve Y2K compliance.

Twenty-three percent of the responding counties estimated that compliance costs in their counties would be between $10,000 and $100,000. Only 22 counties, or 4 percent, estimate compliance costs in the millions of dollars. California's Los Angeles County, the largest county participating in the survey, estimates its costs at $155 million while Ohio County, Indiana (population 5,458), estimates its costs at $400,000.

Because surveying Y2K costs at the local and county level is relatively new, trying to extrapolate rising cost trends on the county level isn't possible at this time.

As reports of increasing Y2K failures begin to surface already this year, observers are expecting the costs to cleanse systems within local and federal governments, as well as at corporate institutions, to continue to grow.

"Y2K spending is definitely on the rise," Marcoccio said. "And outside of IT spending is where it is getting crazy."  

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