By Craig K. Dillon

The impact will be hardest on business operations, even though the source of the problem is in the computer software that support the business. The problem stems from the fact that "years" are stored in most applications using only two digits. Thus, 1997 would be stored as "97," and the year 2000 as "00." Additionally, dates are often used in computations, and a later date is assumed to be higher than an earlier date.

When the year 2000 arrives, not only can dates sort improperly and items be printed out of sequence, but invalid calculations may cause major disruption. If the year "97" is subtracted from "00," the result is not 3 years but "-97." This could result in an aborted transaction, a "hung" application or a crashed computer, depending on how it handles invalid numbers. But the problem involves more than understanding where dates are used in application software. Even if all old two-digit years are replaced with four-digit years, software logic can result in invalid calculations.

The business risks of the Year 2000 issue include:

• Crash of application systems (one invalid result can bring down a computer)
• Disruption of manufacturing
• Dramatic increase of response time to customer inquiries
• Improper application of employee benefits
• Ineffective lot control of finished goods
• Lack of confidence within the financial community
• Liability exposure

If your company has not begun to address the Year 2000 issue, then start now. Delay can only result in operational problems that reduce profitability, destabilize competitive position, and negatively affect employee morale. The longer a company waits to seriously address the problem, the more expensive the solution will be.

The most obvious impact is to the operations of the business. The first question to ask yourself is: "How well will my company function if systems fail?" Most companies would not be in business very long with complete failure of their systems. Most would not be in business with a complete failure of key applications. Since there already may not be enough time or available resources to correct all problem areas, the key applications and functions will need to be identified and dealt with.


Functions to examine
Accounting can be severely impacted by year 2000 date processing errors. It can impact accounts receivable, accounts payable and general ledger. If dates are not properly handled by the accounting system, then transactions may be posted incorrectly, or not at all. Payroll, which operates off of the accounting files, may not process correctly, thereby affecting operational, legal and employee relations issues. Accounts receivable aging reports may be in error, resulting in the overstatement or understatement of company assets, not to mention the potential for interference with collections.

Human resources can be impacted primarily by improperly processing benefits. Employee benefits are legal obligations on behalf of the company, and improper denial of benefits could result in a liability, as well as lowering morale.

Marketing and sales activities can be impacted in several ways. Customer service will suffer if service representatives cannot access information fast enough to satisfy clients. And order processing can be impacted if order date, due date, ship date and other dates cannot be handled. And if the order does get processed, customer invoicing will need to function properly.

For a supply-chain-oriented company, the core activity is making and/or shipping of product. Improper handling of year 2000 dates can impact these core activities. Every application using a date to control actions could be affected. Purchasing, receiving, shipping, requirements planning, capacity planning and master scheduling are all obviously date sensitive. But other areas like lot control and electronic commerce can be equally affected. For instance, if a manufacturer of medicines is using lot control to meet federal requirements and determine when a lot is bad, then good lots could be thrown out or bad lots listed as good. Either way, the impact potential is serious.

Many manufacturing companies conduct EDI and electronic commerce with suppliers and customers. If dates are not properly handled on both sides of the communication line, then problems are only a transaction away. If a Just-in-Time (JIT) operation is using EDI that cannot handle year 2000 dates, then transactions may not be completed, and product will not arrive when needed. Thus, other manufacturing process applications which are operating well could be adversely affected.


Insurance policies
It should also be noted that since the computers are doing exactly what they are told to do, and are not actually malfunctioning, insurance policies probably will not cover any corporate losses connected to invalid year 2000 date processing. Therefore, unlike when a natural disaster hits a manufacturing facility, the company that does nothing to address the Year 2000 problem may be left holding the bag alone.

To add insult to injury, if the worst does occur and companies lose money and stock value, the senior management of the company may not be protected from personal liability. It is rumored that directors and officers of companies will not be protected by Directors and Officers (D&O) liability insurance coverage. Some insurance companies may specifically exclude those impacts from D&O coverage.

In striving for efficiency, manufacturing companies are often more directly tied to their customers, suppliers and marketplace. Large inventories of raw material or finished goods, which might buffer some operations, are not being kept. Even if a company does a good job preparing for the year 2000, suppliers or customers that do not may fail to deliver or may block a distribution channel.

The bottom line is that the Year 2000 issue can dramatically impact a company's bottom line. Stock analysts already know this and are beginning to downgrade stocks of companies they perceive to be lax in dealing with the problem. This issue can also impact a company's credit rating with a reduction of its creditworthiness.

I hope it's now clear that the Year 2000 issue is much larger than just a niggling little systems problem.


What to do
The first thing to do is to get an understanding of how this issue can impact your business by having a Year 2000 assessment performed. This assessment should first define the business impact and operational risks of the problem on your organization. Next, it should analyze the size of the problem from a systems point of view to determine the size of the problem and what will be needed to address it. The business issues and the applications affecting them should be identified and prioritized to perform a triage function. Finally, a strategy and plan should be prepared to deal with the problem.

The triage function could turn out to be very important, since it is likely that not all year 2000 date handling will be able to be corrected by Jan. 1, 2000. It will be important to spend resources on the critical problem areas first.

Surrounding all the applications is the computer environment. The operating systems and monitoring facilities should be verified as being Year 2000 compliant. If an operating system cannot handle the year 2000, the condition of the application software will be moot.

Much of the software used by most companies is purchased package software. Since the source code is probably not available anyway, Year 2000 compliance is the responsibility of the vendor. But while it may be the vendor's responsibility, it will be the operating company that is affected. Purchased software should be tested to ensure that it is Year 2000 compliant. Vendor claims and assurances should not be accepted without verification.

Most purchased software operates with some degree of modification and interfacing with other systems. These interfaces will need to be checked, as well as any modifying code and auxiliary files.

Unfortunately, even software written recently is not necessarily Year 2000 compliant. Do not assume that recently purchased software is Year 2000 compliant. Also, unless you have instituted standards and monitoring procedures, do not assume that code being written right now by your own programmers is Year 2000 compliant.


It's your legacy
The Year 2000 problem is primarily a problem of the legacy systems. The legacy systems in most companies were written in COBOL, RPG and BAL. It is important to keep in mind that as the year 2000 approaches, the cost for these resources is going to rise dramatically. Already, BAL and COBOL contract programmers have seen their prices rise from $30-35 to $50-70 per hour. Many market analysts predict those prices will continue to increase through 1999, reflecting the increasing scarcity of programmers to do the job. Another way of looking at it is that the cost per line of code is projected to rise from $1.30 to more than $4 by the end of 1999.

The last thing to do in a Year 2000 assessment is to determine a strategy and plan for addressing it. One strategy to consider is the replacement of legacy systems with new software. Not only can this be more expedient, but purchased software can be capitalized, while the costs of programming changes is expensed. Since the overall effort could be a significant expenditure, this may well be an important issue.

The plan should identify the costs and resources necessary to address the problem, and it should reflect the triage effort. If the key applications can be completed by the time year 2000 dating begins to take affect , then you can have confidence that your company will dodge this bullet.

But do not consider yourselves out of the woods yet. Estimates can be wrong, items can be missed, and project due dates can be blown. Unfortunately, Jan. 1, 2000, cannot be postponed. Whatever extra time you may feel you have, do not waste it. Get started now. If you solve it ahead of time, good for you. But if you delay and surprises occur during the project, you may have no slack with which to work. And then, excuses will not be acceptable.

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