Y2K war: Less time, more money

The Year 2000 bug is hitting corporate budgets hard on a global scale, according to a new study.

The estimated cost of dealing with the millennium bug in Europe and the United States has risen 20 percent in last six months and some organizations may now not finish their conversion work in time, according to a study released today by Cap Gemini.

The survey found the total estimated cost of dealing with the problem had risen to $858 billion from $719 billion predicted in April. Cap Gemini is one of many firms that provides Y2K research as well as Y2K consultants and services to companies and organizations tackling the problem.

So far, some $494 billion, up from $256 billion in April, has been spent, with $238 billion invested in the last six months alone. Since April, nearly 60 percent of all available IT labor resources in the 12 surveyed countries have been focused on Year 2000 efforts.

Cap Gemini's findings are in sync with other research done on the issue.

"From calendar year '97 to calendar year '98 we've seen costs go up dramatically, about five to six times," said Lou Marcoccio, a director of Year 2000 research at the Gartner Group, another firm that provides Y2K research and consulting services to the private and public sectors.

Cap Gemini said it calculated that major economies were roughly halfway through fixing the problem caused by the inability of some computer systems to recognize the date change from 1999 to 2000.

But the pace of progress varies from country to country and within sectors, with the United States generally better prepared but less confident about its millennium program.

While there had been a greater sense of urgency within business in recent months, Cap Gemini vice chairman Geoff Unwin said: "But the brutal truth remains that the fight against the millennium problem will go right down to the wire. As costs increase, many organizations are working on ultra-tight deadlines, with only half doing real-time testing before the year 2000."

If costs continue to escalate at the current rate, there is a real danger that the completion date will slip beyond 2000 for some organizations. A three-month slippage would result in three out of ten organizations failing to finish in time.

What's important to recognize is there is a lack of time to do adequate testing," said Stella Goulet, marketing director for Cap Gemini. "Smaller companies are in more trouble than the larger ones."

Within Europe, Cap Gemini said France and Germany had accelerated their efforts in the last year, but Britain and the Netherlands had slipped in comparison.

While the United States leads Europe in project progress and contingency planning, American businesses are less confident that their "mission critical" computer systems will be ready for year 2000, the survey found.

The United States is better prepared and virtually all U.S. companies are now planning some form of business continuity measures, it added. This contrasts starkly with Europe where only six out of ten organizations are developing contingency plans.

Of the $238 billion spent on the millennium project in the last six months, around one-fifth has gone to hardware, one-fifth to software, and the balance on staff costs.

Goulet said the numbers of the study were not surprising because as companies get further along in their projects they get a better sense of what they have to do "and costs go up."

Again, Marcoccio said his research is also finding a huge increase in spending as companies find making sure their own business is Y2K compliant requires more work than first thought.

"Companies are finding they are going to have to do more research of their clients," and business partners, he said. "They are also doing a lot of major things in parallel or at the same time, like PCs and contingency planning, while testing and fixing."

According to the Cap Gemini study, business contingency planning strategies differ sharply between the United States and Europe. Among the U.S. respondents adopting contingency measures, 67 percent are making plans to deal with failure of essential services, in comparison with 33 percent of European respondents. More than three-fourths of U.S. respondents are addressing potential failure of IT systems, compared with 43 percent of Europe.

Reuters contributed to this report.