In-Depth

Countdown to Year 2000: What You See, Is What You Get!

• 05/01/1999

On March 2, 1999, I was on CNN’s "Burden of Proof" program being interviewed on the Y2K problem and its possible impact in the United States. The second half of the show was preempted by playful/almost giddy leaders of The United States Senate Special Committee on the Year 2000 Technology Problem, proclaiming that most Y2K problems are well under control and no TEOTWAWAKI (The End of the World As We All Know It!).

I was happy and relieved, but I still wanted to read the long-awaited-for Senate Report ("Investigating the Impact of the Year 2000 Problem, Summary of the Committee’s Work in the 105th Congress," available at www.senate. gov/~y2k) on which their analyses, conclusions and opinions were based. To my dismay, the Senate Report very much mirrored my own findings which say that while no TEOTWAWAKI will occur – problems, disruptions and unknowns will continue to plague us all as businesspeople, investors, wage earners, community members and family members.

My assessment and predictions, based on current information (including confidential data) are subject to change with new findings, and will be updated. But as of today, I see:

• Tremendously increased awareness of potential Y2K problems and impact – and corresponding assessment and remediation activity. But for the most part, a large percentage of companies started late, are still playing catch-up, and some mission-critical systems will fail as a result (mostly impacting those specific and related companies, but not causing regional or industrywide shortages).

• Apparent and reported great strides in larger businesses, the financial industry (especially banking, insurance and securities) and in critical infrastructure utilities, (including power and telecommunications sectors) will minimize the greatest negative nationwide potential impacts. (Great news!)

• More than a few directors and officers still are not treating/taking Y2K seriously within their own firms.

• Little-to-no real progress in small business. This segment will be hurt.

• Key federal government agencies are making little progress or are expected to miss the Y2K mission-critical

systems deadlines, especially the Department of Energy, Department of Transportation and Department of Defense. Same for national/state supported/administered programs for the needy, such as welfare and food stamps. Social Security Administration is in great shape – but it has been remediating its Y2K problem for 10 years!

• Drastic supply chain, business, customer failures, setbacks and re-trenching in several foreign countries and companies. The United States, Canada, England, Israel and Benelux countries (Belgium, the Netherlands and Luxemburg) will be in the best shape.

• Many airlines/airports are likely to face excessive delays and disruptions, flight cancellation, increased baggage handling problems and possible security problems/breaches.

(Taken from the Senate Report)

• Many organizations critical to Americans’ well-being are still not fully engaged in finding a solution.

• Most affected industries and organizations started Y2K remediation too late.

• Self-reporting has yielded unreliable assessments for most industry sectors. With few exceptions, disclosure of Y2K compliance is poor.

• Fear of litigation and loss of competitive advantage are the most commonly cited reasons for bare bones disclosure.

• National emergency and security planning for Y2K-related systems failures is just beginning.

• Leadership at the highest levels is lacking.

Utilities: While some compliance efforts are behind, the utility industry as a whole is configured to handle interruptions, blackouts and natural disasters. A prolonged, nationwide blackout is not likely to occur. However, local and regional outages remain a distinct possibility depending upon the overall preparedness of the individual electric utility serving a given area.

Healthcare: The healthcare industry lags significantly in its Y2K preparations compared to other sectors. Because of limited resources and lack of awareness, rural and inner city hospitals have particularly high Y2K risk exposure.

Telecommunications: A massive industry-wide effort is underway to assess the impact of Y2K on telecommunications. The initial interoperability testing indicates that the U.S. communications will transition without significant problems. Currently, more than 80 percent of public network systems have been tested and are considered compliant.

Transportation: The transportation sector is the linchpin for just-in-time inventory management across most every sector, from healthcare supplies to food. The Y2K readiness of this sector is critical to our global economy. Planes will not fall out of the sky, but disruption of flights and global trade between some areas and countries may occur… The FAA… has a long way to go to be ready for Y2K and remains a high risk. The maritime shipping industry has not moved aggressively on Y2K. Disruptions in global trade are highly likely… Public Transit systems may not be taking the Y2K problem seriously enough to be ready for the Year 2000.

Finance: ATMs are expected to function correctly and banks should have adequate cash to meet consumer demand, based on a Federal Reserve estimate that each American household will withdraw an average of $500.

The securities industry has responded well to its internal Y2K issues and has undertaken expansive testing. However, fund managers and brokers have only recently started to consider the implication of corporate Y2K vulnerability on investment decisions.

Government: Several states and many local governments lag in Y2K remediation, raising the risk of service disruption. The federal government will spend in excess of $7.5 billion and will not be able to renovate, test and implement all of its mission-critical systems in time. Wholesale failure of federal government services is not likely to occur.

General Business: In general, large companies have dealt well with the Y2K problem, due to greater resources. Very small businesses may survive using manual processes until Y2K problems are remediated. However, many small- and medium-sized businesses are extremely unprepared for Y2K disruptions. One survey shows that more than 40 percent of 14 million small businesses do not plan to take any action.

International: Several U.S. trading partners are severely behind in their Y2K remediation efforts. For example, the GartnerGroup estimates that Venezuela and Saudi Arabia (two of the largest U.S. oil importers) are 12 to 18 months behind the U.S. in their Y2K remediation efforts.

These assessments, however, call for redoubled government, business and citizen preparation and planning – and not panic.

Warren S. Reid is the President of WSR Consulting Group, LLC, in Encino, Calif. He can be reached by fax at (818) 986-7955, via e-mail at wsreid@wsrcg.com or through his Web site at www.wsrcg.com.