Sooner or Later, It Adds up to Real Money

Is Year 2000 creating an all-hands-on-deck, no-expense-spared scramble to make critical systems compliant? Not really, a new study by market research firm IDC (Framingham, Mass.) finds. While the spending tab is huge -- total worldwide spending on Year 2000 between 1995 and 2001 is projected to reach about $300 billion -- this actually only represents a meager 3 percent of total IT spending, according to a recent report from IDC.

That's because companies are attempting to "solve [Y2K] at minimum cost and have not increased their IT operating budgets to continue spending at the same level as before on non-Y2K projects," says Thomas Oleson, research director with IDC. "These companies have shifted priorities and managed to reduce spending or defer projects in other areas so that the total IT budget has increased at only about a 14 percent compound annual rate in the last three years." IDC bases these projections on interviews with 12,000 companies worldwide.

About 31 percent of companies do expect to reduce spending for installations or upgrades of major software packages due to the diversion of funds to Year 2000 work, the study finds. However, "total spending on technology will still increase because a very large percentage of total technology spending occurs outside the centralized IS organization," Oleson points out.

IDC projects that 1998 will be the busiest year for Year 2000-related spending, peaking at $87 billion, or 6 percent of total IT spending, the highest percentage for the years studied. Emphasis will shift from larger systems to client/server applications in 1999, the study finds. Once the bulk of Year 2000 work passes, corporate IT budgets will return to the about the same percentage of corporate revenue as in 1996 -- about 4 percent of revenues.

Total Year 2000-related spending within the United States is also on the rise, according to Oleson. In early 1997, IDC estimated total spending to reach $115 billion. This figure has been revised upward to $122 billion, due to "poor testing practices and project slippage," he explains. European spending estimates are also rising rapidly due to the added challenge of Euro currency compliance.