Monday, August 24, 1998

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Business IT

It's a business issue, not just technology

By Charles F. Moreira

IN less than 500 days, when the clock passes the midnight mark and the year 2000 is ushered in, many computer systems the world over are going to go haywire -- or at least, that's what the doomsayers are proclaiming.

It sounds like a simple enough problem -- many older computers, and a few of the newer ones -- recognise the year only by the last two digits. Thus, the year 1998 is denoted by the figure "98."

When the year 2000 rolls around, and computers try to make sense of the figure "00," many will not be able to tell whether that number means the year 2000 or 1900.

But fixing the problem is a major undertaking, involving programmers going through millions of lines of code to identify "date-sensitive" calculations and computations, then correcting it -- all through an organisation's computer systems.

BUZZWORD

It has become enough of an issue to have coined its own buzzword -- the Millennium Bug or Year 2000 (Y2K) problem.

Experts predict the Y2K date problem will cause problems worldwide for businesses and the man on the street.

Businesses could find errors in their accounts, employees may find errors in their pay cheques, and you may find that you can't withdraw money from your bank.

Companies the world over are racing against time to fix the problem before the year 2000, while the computer programmers who can help them solve the problem are becoming more difficult to find and more expensive to hire.

The US-based Gartner group estimates the problem will cost a total of US$600bil worldwide to fix.

Others are quoting figures that run in the trillions of dollars.

Governments the world over have appointed special committees and task forces to solve the problem.

A BUSINESS ISSUE

But because it's a problem with computers, many companies and organisations -- even in Malaysia -- think of it as a technology problem.

CEOs and managing directors see it as a technical issue to be resolved by their information systems or EDP departments.

Experts are now trying to steer companies away from this fallacy -- because more and more businesses are ultimately dependant on computers -- and because it is only upper management that can steer the proper amount of funds and other non-financial resources to resolve the issue, it is imperative that everyone recognise that the Year 2000 problem is a business issue.

Furthermore, if management doesn't make a serious attempt to fix the problem, company directors may face lawsuits by their shareholders for losses suffered -- plus a whole lot of other legal liabilities (see In.Tech, Aug 18).

"It's a business problem, and not just a problem for the information systems (IS) department," reiterates Lee Choy Leng, a Y2K programme director with Unisys (Malaysia) Sdn Bhd. "Senior management should look into how to minimise their business risk and develop contingency plans to continue with their business operations should the Y2K problem hit them."

Aware of the problem, stock exchanges the world over -- including the KLSE -- have made Y2K correction or "remediation" efforts a compulsory part of any public listed company's annual report.

Should company directors inadvertently make incorrect statements or omissions in these reports, or in statements to the Securities Commission (SC) about their company's readiness or efforts being made to address the Y2K problem, they could face criminal charges under the Companies Act.

"In the light of such onerous obligations, directors would be well advised to seek the assistance of Y2K experts in drafting statements in their annual reports and disclosures to the KLSE," says Philip Chan, a lawyer specialising in Year 2000 litigation.

The Y2K problem could affect almost any industry, institution or organisation which uses computers -- including insurance companies, hospitals, schools, telecommunications and utility companies and so on.

With today's emphasis on linking networks between businesses, errors generated in even one non-Y2K compliant system will propagate and create errors in the others.

COMPUTER DEPENDANCE

While information technology or IT has helped companies become more competitive, flexible and efficient, it has also made them more vulnerable, notes Lim Yong Cheang, an engineer and consultant on Y2K matters with IBMS Technology Sdn Bhd.

Lim is also author of the book Y2K crisis -- management briefing and awareness crash course.

"After the 1996 bombing of New York's World Trade Centre, 90% of the small-to-medium sized businesses located there failed within two months because they were unable to continue with their business operations," he says.

Another worrying trend worldwide is that most small-to-medium sized enterprises (SMEs) are either not fully aware about it, or are too preoccupied with other problems to bother fixing it.

The root of the Y2K problem goes back to the early 60s, when computer programmers decided to represent the year by its last two digits ("98" instead of "1998").

Back then it made good business sense, since computer memory and hard disk capacity were scarce and expensive.

"In 1963, mainframe computers were generally rented -- and it cost US$2,100 annual rental for one megabyte of hard disk space compared to US$1.02 today," says Lim.

Information systems departments only became aware of the problem in 1989, and it took even longer before their warnings found their way into the right places -- the boardroom.

WHAT MAY HAPPEN

Nobody -- not even the experts -- is really sure what will happen on Jan 1, 2000.

But there have already been reports of credit cards and passports which are supposed to expire only in the year 2000, being considered already expired, and are thus rejected by the respective authorisation or immigration computer systems.

A department store chain in Britain scrapped a whole consignment of corned beef with a "buy by" date beyond the year 2000, just because its computer regarded the consignment to be way past its shelf life.

The problem can also affect financial calculations with rather dramatic results.

For example, a depositor puts RM10,000 in fixed deposit at a 7% annual compound interest rate on Jan 1, 1998, with interest being credited to the principal annually.

On Jan 1, 1999, the computer program subtracts 98 from 99 for a difference of one year, which it then applies to the compound interest equation to yield RM10,700.

The next year, the program subtracts 99 from 00 (the year 2000) to get a difference of minus-99 years, and two things can happen.

If the program accepts the minus sign, the amount becomes RM13.19, virtually wiping out the depositor's investment, and exposing the financial institution to litigation by this depositor.

On the other hand, if the program ignores the minus sign and treats it as a plus sign, the amount jumps to nearly RM8.7mil, making the depositors very rich while potentially causing the financial institution to go bankrupt.

However, the computer might also regard the account as having been dormant for 99 years and may freeze it.

The same problem can affect all financial calculations based on dates, including ageing analyses, amortisation, insurance, shelf life, scheduling, billing and many others such calculations with potential problems for businesses and consumers.

Y2K-READY?

According to a recent Reuters report, a majority of British CEOs believe their corporate computer systems are Y2K compliant.

However, only half of them have made contingency plans, such as manual bypass systems in the event computer systems fail.

Almost all -- or 98% -- of the British CEOs said they have conducted full audits of their computer systems, or are in the process of doing so.

The most serious failures are expected to occur in accounting and production.

About 40% believe companies could suffer severe cash flow problems, 30% believe production lines could grind to a halt and payrolls stop running, and just over 25% thought some businesses could go bust.

In his book, Lim cites a November 1997 Financial Times report which quotes Robin Guenier, who heads Britain's Taskforce 2000, as saying that 40,000 of the British SMEs are not addressing the problem properly.

Lim also cites a survey by Howard Rubin, a computer science professor at New York's Hunter College, which indicates that two-thirds of large corporations in the US and Canada don't have proper plans to address the problem, while SMEs and government agencies are lagging further behind.

According to an Associated Press report, Japan is taking a "laid-back" attitude towards the problem, quoting Takafumi Hamaguchi, chief researcher at Tokio Marine Risk Consulting Co, as saying that "there is no sense of crisis."

According to Federation of Malaysian Manufacturers (FMM) president Datuk Paul Low, about 25% of the 2,000 FMM members are computerised, half of whom have made significant progress in Y2K efforts.

Of the 208 members who responded to an FMM Y2K survey, 10% reported they are already compliant.

About 60% of FMM members are SMEs and Ramesh Sharma, managing director of Syspro Impact Software (M) Sdn Bhd, feels that local SMEs are more concerned with surviving the current economic and financial problems.

Syspro supplies manufacturing, accounting and distribution software, and Ramesh is doubtful that local SMEs will be Y2K compliant in time, although he is confident multinational and large local corporations will.

Meanwhile, Low says that of the 208 respondents in the FMM survey, 95% said they are aware of the issue, 25% said they were undergoing code conversion, 16% are in the testing stage, and 10% said they are already compliant.

Low urges chief executives to take an active part in their company's Y2K effort, noting that it can be critical to their ability of obtaining financing and insurance, both of which are key business necessities.