Y2K fix could cost business $1.5 billion

Too many companies are ticking the boxes and saying the job's half done rather than tackling the year 2000 problem at a senior level, warns a strategy manager. ADAM GIFFORD reports.

The labour cost to New Zealand business of fixing year 2000 computer bug problems could reach more than $1.5 billion over the next nine months.

But the job can still be done if organisations get serious now, according to Mike Osborne, a Y2K strategy manager who came up with the estimate after studying data produced by the Year 2000 Readiness Commission.

Mr Osborne said people were looking at the commission's survey results and focusing on how much had been completed.

"That's like saying, `I've built half a stop bank.' My interest as a Y2K strategist is understanding what we have left to do and how we will get that done," he said.

Mr Osborne looked at what organisations said they had done so far, estimated the hours they would need to complete the other stages, put in some likely charge-out rates and ran the figures through a spreadsheet.

"I took an extremely conservative view on all my figures," he said, running scenarios of a $25 an hour charge for small businesses and $50 for organisations with more than 50 people.

His methodology was checked by a senior consultant with a large IT consulting organisation, who upped many of his figures to a more realistic level.

According to the Universal Business Directory figures used by the Readiness Commission's research company, there are 2463 companies with 50 or more employees.

Mr Osborne's best case scenario is that the 50 per cent of big companies which have still not completed their assessment can do so in an average of 500 hours at a charge-out rate of $50. His worst case scenario estimates 1000 hours of assessment at $75 an hour.

Some 79 per cent of big companies still have to finish fixing their systems and 80 per cent haven't done the testing. That could take between 1000 and 3500 hours to fix and 1000 hours to test.

Add in interface testing, checking the progress of suppliers and key customers and informing others of your own progress, assessing the overall cost of the project, developing and testing business continuity plans and changing business plans, and the totals range from $330 million to $1.3 billion.

The cost for getting things right in firms with between 10 and 50 employees is about $200 million, and a further $25 million for businesses with 5-9 people.

These numbers excluded more than 200,000 businesses with less than five people because "it was too hard to make a meaningful estimate at an individual business level".

It will cost between $13 million and $38 million to get the 86 local authorities ready. The public sector cost, excluding health, is between $18 million and $53 million.

The figures don't include replacement or upgrades to hardware, operating systems or applications packages.

"If you look at it in absolute terms the sum of hours is huge, between 15 and 25 million hours. However, that's over a large number of companies. As a ratio of available labour hours over the next eight months it's about 2.5 per cent," Mr Osbourne said.

"The resource missing so far is the will to do it and apply the necessary focus and budget, in terms of finding or diverting resources from other tasks."

Too many companies are still seeing the problem as an IT-only issue and refuse to approach it from a senior level.

"They see it as effectively a clerical task, to tick the boxes and say they've checked this or that, but if their business is to succeed in 2000 they must take strategic views, and that needs old heads. Y2K is about judgment calls. Tyros can't do that."

He said business should be concerned about the finding that half of all large businesses have still not completed assessment.

"Even though people say the problem is going to be with small and medium enterprises, that shows it's still as much with the big guys. Being indifferent about Y2K may seem cool this year, but it's going to look a bit silly in the next."