We have all seen the reports about how large companies are ahead of mid-size and small businesses. They have more money and resources, right? That may be true. They do not have more time though. The same clock is ticking away for everyone on this planet. Let's assume that the reports are true, that large companies are indeed "ahead". Many still won't cross the finish line before the race is over. Consider the following news report from CNET News.com

http://www.news.com/News/Item/0,4,36208,00.html?st.ne.fd.mdh.ni

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Large firms too optimistic on Y2K progress? By Erich Luening Staff Writer, CNET News.com May 6, 1999, 12:20 p.m. PT

Large U.S. corporations' optimism about their Year 2000 computer compliance may be unrealistic, according to a study released today. The study conducted by research firm Triaxsys looked at how much companies had spent through the end of last year on the Year 2000 technology problem, as disclosed in their quarterly financial reports submitted to the Securities and Exchange Commission.

The findings led Triaxsys analyst and author of the study Steve Hock to conclude that although many companies have made major progress in their Y2K efforts, many are not spending enough to complete the projects by January 1, 2000. "There are a significant number of companies that have a tremendous amount of work to do and they might not make it," said Hock.

From formal reports filed with the SEC between January and April 1999, Triaxsys obtained data on 647 Fortune 1000 companies' total Year 2000 project budgets and the percentage of those budgets that had already been spent.

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As I have posted before; Follow the Money. Check for yourself. Compare how much was budgeted versus how much has been spent for the period. Does it make sense to hear a claim of high percentage compliance when a corresponding low percentage amount of actual money has been spent?

Even if a large company crosses the Y2K finish line compliant, will all it's critical suppliers be compliant? For example, GM has 100,000 suppliers. It took only TWO suppliers, during a strike, and they could no longer manufacture a car. Consider now that each one of these 100,000 suppliers have their own suppliers and so on, and so on, and so on. Ask yourself: How many supply chain links need to break for the chain to break. How many links on any chain need to break for the whole chain to break? The answer is One. So when you hear that large companies are "ahead", realize that this may be of small comfort. They are ahead in a race without winners - Just as the U.S. is "ahead" of all other countries. Again, small comfort. Consider that even if the U.S. was absolutely 100% compliant, Y2K will still have a major impact on us due to the other 180 or so countries being 6 to 18 months, or more, behind. As Federal Reserve Chairman Greenspan has said the U.S. is not an island of prosperity - there are no islands. We are in an era of global trade. We have a global economy. We are in a global race together against the same ticking clock - a race without winners.

-- Rob Michaels (sonofdust@com.net), May 07, 1999

Answers

I love the way you put it. The logic is so clear to me that I cannot understand how so many people don't see it. Even in the best case scenario, it can get ugly. I don't know any GI's in my neck of the woods. I started making some preparations (buying food & stuff) and everybody looks at me like I'm crazy. It's frustrating. BTW, this forum is a great source of info. I just wish people would take their childish arguments and temper tantrums somewhere else and try to keep the noise out of the forum. It would be easier to browse thru.

-- The Outcast (Somewhere@SouthOfEurope.eu), May 07, 1999.

I believe that the whole premise of measuring Y2K progress by percent of budget spent is flawed. First, it assumes that the original amount budgetted is a 100% accurate assessment of the work to be done. Not very likely. Secondly, it assumes a perfectly linear relationship between money spent and time (i.e. if you budget $12 million to be spent over 12 months, then you should spend exactly $1 million per month). Again, not very likely.

So, what are the reasonable explanations for this apparent discrepancy as Triaxsys reports.

1. Companies are behind and will not finish as Triaxsys concluded.

2. Accounting practices vary from company to company. Some of the original budget may have included new hardware or software which has been capitalized and depreciated over several years so the actual amount 'spent' so far will look less. Also, some companies may just be waiting for new systems or software to be installed and payment may not have been made to the vendor yet. If their payment terms are Net 30 or Net 90 or if they have a 10% or 20% holdback until system acceptance, they may very well not spend all of their budgetted money until after 1/1/2000.

3. The original budget was wrong and it will cost much less than anticipated. Let's say the CEO of a major company decides he needs to have a Y2K plan on his desk by the end of the week. By the time the request filters down to the people who 'would' be able to give a reasonable estimate of the cost, they have no time to do so. So, everyone guesses and adds a little extra just in case. If this happens on several levels, by the time the CEO gets it, it could be massively overstated. And, no one was ever fired for bringing a project in early and underbudget.

4. Maybe the original budget was not 'wrong' but they have found cost savings during actual implementation. If you have 100 similar systems and budget the same amount to upgrade each one, maybe after doing 10 or so you find a way to do it 50% faster. Or maybe you budgetted to replace 100 PC's and the cost per PC has dropped since the budget was developed due to normal market conditions or a better than expected volume discount. Or maybe you budgetted to replace a lot of software but discovered that the existing software could be patched for substantially less money.

Now, it is possible that Triaxsys hit the nail right on the head and, if you accept that their initial assumptions are correct, then you would accept their conclusions as correct. But, are any of the three alternate scenarios outlines above any less possible? What is the truth? No one knows for sure (except the companies involved) so you need to accept some information on faith. In other words, they did not get to be Fortune 1000 companies by intentionally misleading their shareholders and customers or by being completely incompetent at managing large projects.

-- RMS (rms_200@hotmail.com), May 07, 1999.

RMS, I think you missed one other factor.

The companies I know have redundantly addressed multiple systems. For example, the main course of action may be to replace a system, with a project going forward. However, as backup a plan is already in place, and budgeted, to also "remediate" the system being replaced.

It's not an all or nothing scenario. At key dates, the "remediation" plan is moved a step forward, depending on the status of the replacement project. But both projects are fully budgeted.

-- Hoffmeister (hoff_meister@my-dejanews.com), May 07, 1999.

Rob,

My little note to you is off topic. Just wanted to know if you decided on a getting a dog. Let me know by email. I know someone with puppies. It is an unusual breed.

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), May 07, 1999.

RMS: I agree with your statement "the whole premise of measuring Y2K progress by percent of budget spent is flawed." It has been my experience that budgets start out too small. Look at the cost estimates for dollars allocated for addressing Y2K. In every case that I know of for companies, and also for governments, including the U.S., the amount of money needed has gone in one direction over time. UP.

You mentioned original budgets being wrong because "it will cost much less than anticipated." Could you provide some actual examples where a company or government is spending less than originally budgeted. Perhaps I have dealing with all of the wrong companies. OTOH, there have been consistent reports of costs going higher for both the public and private sectors, posted here on this Forum and according to the governments own reports. You can verify this for yourself, or perhaps some other posters (Kevin/Diane?) Will be kind enough to provide a link or two or three.

I think you may have a valid point regarding depreciation and accounting practices, and also the possibilities for at least some cost savings. Here I would question what the actual percentage of both actually represents to total dollars budgeted. It seems to me that this is what is of consequence. If you could have a cost savings, for whatever reason, if it represents a small percentage then the overall impact might be negligible, while if it was a substantial percentage it could have the impact you described.

Hoffmeister: Good point. I would add that besides replacement there is also retirement of systems and applications which can result in far lower costs than remediation. Again the question is what percentage Would this represent. The larger the better. I have a hard time believing it is a large percentage for the Majority of companies or government agencies though.

All: These first few posts have been interesting. I am hoping to have the discussion expanded to the other aspects that I wrote in the origianl post. Supply chains, Global interdependency, etc., and how this relates to the misleading, in my opinion, thought that "ahead" is meaningful, which was the main point I was hoping to explore.

-- Rob Michaels (sonofdust@com.net), May 07, 1999.

Hi Stan. I do not have a valid e so will respond here. Mrs. Michaels, even after reading the thread, still wants to wait. So, we are not going to get a dog anytime soon though it is still "on the table" for later in the year. BTW, I dusted off the old rabbit hutch and got a Dutch Buck, and will probably get a couple of Does to keep him company :) Thanks for thinking about me and your kind offer, it IS appreciated!

Back to the topic. Are we in a race with no winners as I think? What are your thoughts. I have to run and won't be back until later tonight. I'll catch up then, Rob.

-- Rob Michaels (sonofdust@com.net), May 07, 1999.

Rob:

Could you provide some actual examples where a company or government is spending less than originally budgeted.

One I know for sure from direct contact is International Paper, the largest paper company in the world (and a major customer of my company). Their December SEC filing states that they are reducing their estimate from $135 million to $100 million, better than 25%. My own company is privately held and thus does not make such disclosures but we will spend about 20% less than our original target.

Supply chains, Global interdependency, etc., and how this relates to the misleading, in my opinion, thought that "ahead" is meaningful, which was the main point I was hoping to explore.

I will agree that ahead is a rather meaningless term and where you are relative to others is equally meaningless. Snapshots like this can be interpreted in a hundred different ways to 'justify' your opinion, whatever it may be. The analogy to a 'race' does not seem to fit to me because that implies a single winner and everyone else is a loser. I would equate it more to a test in school where some finish very early, some finish just before the time is up, and a few don't quite get to the last question.

I see on another thread that Weiss has published his latest ratings which are essentially the same as the Triaxsys numbers in that they are based on % of budget spent to date. The assumption of linearity in spending is ridiculous and the Triaxsys report even demonstrates this. Using their numbers for % completion (27% 1Q, 43% 3Q, and 56% 4Q), you can see that the progression is more exponential than linear. If you fit a curve to this data, it shows 100% is hit sometime mid-3Q99, hardly what the Triaxsys report implies but certainly a justifiable conclusion based on their raw data.

Which brings me back to the point I have tried to make several times over the last few days -- facts are just raw data and can be interpreted a lot of different ways. Every so called 'factual report' is simply one person's interpretation of what is a relevant fact and what isn't. For a doomer or polly to blindly accept any report without giving it your own litmus test is a recipe for trouble. To expect others to accept your interpretation of the report without some challenge is unwise. To believe that only you are 'right' and that you can convince someone else that they are 'wrong' is futile.

-- RMS (rms_200@hotmail.com), May 07, 1999.

RMS...the only problem with your anaysis (which could be correct otherwise) is that most companies' Y2K budgets for the most part have gone *up*, not down...while their actual expenditures have not kept pace with the rising budgets. This is the Yardeni objection. That doesn't conclusively mean he's right and you're wrong -- Int'l. Paper would be a counterexample if your figures are correct -- but it does pose a threat to possibilities 3) and 4) that you mentioned.

scott

-- Scott Johnson (scojo@yahoo.com), May 07, 1999.

RMS: Thank you for responding. It is certainly good news that there are verifiable examples of companies that have been spending less than originally budgeted. I have not seen this until now. It makes me wonder and return to the percentage question, in terms of what percentage is it that are under spending. There is no answer to this that I have seen, and it seems to me that if this were a significant percentage it should be widely reported. Everyone likes good news - especially Wall Street analysts. Perhaps someone has gone through all of the SEC statements and can tell us -maybe the SEC?

I used the race analogy because everyone is racing the clock and this seemed appropriate when discussing the meaningless concept of being "ahead" in a Y2K context. As you pointed out, some will finish ahead of time (BankAmerica I think is one example), some won't. The issue here gets back to my statement regarding interdependencies. If we beat the clock but we can't settle inter-bank transactions with our domestic or international partners for example, then there is a mission critical failure.

Your point about linearity I think gets to the underlying problem of the lack (to my knowledge) of a better way for measuring progress - regardless of if it is percentage of budgeted dollars spent as an indicator of completion or measuring an application or systems progress towards compliance by using lines of remediated code versus total lines of code, which I have seen done also. There is no standard that I know of. So we use whatever "facts" we can get, regardless of the methodology used, or the merits or lack thereof. Which brings me to your last point.

I couldn't agree more with you that each of us needs to think and question rather than accept blindly, and my position on this has been clear, on record, and consistent, including a thread devoted to it explicitly. Regardless of if it is raw facts or anything else, thinking is critical in forming any opinion. When you get right down to it, the reason I wanted to post this is because some people that I have talked to about Y2K, not just a few either, have pointed to this "so in so is ahead" statement and have stopped thinking! So in this respect you have brought me to the exact point that I hoped the thread would go. This "We're ahead of everybody else - no worries" kind of attitude is causing some people to not even examine facts further so they can come to a more informed opinion. But then again, this is human nature, in my opinion. People want to be entertained, not think. After they hear the sound byte or read the headline "We're Ahead", then it's off to whatever the next thing is.

-- Rob Michaels (sonofdust@com.net), May 07, 1999.

A few banks--U.S. Banks--have just started publicly announcing Y2K readiness in the last month or so. Banks, as we all know, are one of the best prepared of all sectors of the economy. More banks, I'm sure, will be announcing readiness this summer.

This kind of trend does not make me optimistic about how many in the business community in general--and foreign countries--will be compliant in January 2000. No matter how committed an organization is now and how much it's spending, what's probably most important is whether it started by at least 1996.

-- Kevin (mixesmusic@worldnet.att.net), May 07, 1999.

See this recent thread for some really interesting figures on the pace of federal government remediation...

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=000nFa

"Letter from Joel Willemssen to Majority Leader Richard Armey"

-- Kevin (mixesmusic@worldnet.att.net), May 07, 1999.

RMS: Here is a link to the thread I was referring to called "New to Y2K? Question what you hear and read", if you or anyone is interested.

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=000S0B

Kevin: Thanks for your thoughts. I will check out the link you gave after work - 11 in the bag and another three hours to go :( break's over - won't be popping in any more till late.

-- Rob Michaels (sonofdust@com.net), May 07, 1999.

Here is a snip from the letter that Kevin provided a link to that is related to some of the previous discussion on this thread:

Reported Y2K Costs for Fiscal Years 1996 - 1998 Have Increased Dramatically But Agencies Generally Do Not Track Actual Y2K Costs

Reported Year 2000 costs have increased dramatically over the prior 3 fiscal years. They have gone from about $74 million for fiscal year 1996, to $837 million for fiscal year 1997, to $2.745 billion for fiscal year 1998 for the 24 major agencies and 10 other organizations included in our review (7 additional organizations did not provide information on prior Year 2000 costs). The reported costs for these prior years represent less than half of the $7.5 billion total Y2K costs estimated by the 24 major agencies.

Of the 24 major agencies, only 7 agencies reported separately tracking actual Y2K costs for fiscal years 1996 through 1998. Five additional major agencies said they tracked some actual costssuch as contract costsbut estimated other Y2K costssuch as labor costs. Nine of the other major agencies reported that they did not separately track actual Y2K costs for fiscal years 1996 through 1998 and three agencies did not provide information on Y2K cost tracking. Of the seven major agencies tracking actual costs, three agencies used financial management systems and four used reports from component entities to track costs.

-- Rob Michaels (sonofdust@com.net), May 07, 1999.

Kevin,

One bank you won't be seeing announce any good y2k news anytime soon is Regions Bank out of Birmingham, AL. They are in poor shape; recently Wachovia looked at their IT mess and backed away from an acquisition deal. BTW, pollys, Regions is one of the 25 largest banks in the country.

-- Spook (spook@scared.boo), May 07, 1999.

I would think some of the largest expeditures for y2k would be incurred near the beginning of a project. If a new system is being installed, there would be large initial outlays for the new hardware and software.

Someone mentioned above that depreciation might be a factor that should be considered. That is not correct. A capital budget is a separate entity and is based on cash outlays.

There are two other studies which came to the same conclusions as the Triaxsys study. There is a Weiss (sp?) study and the Ed Yardeni study. These studies were mentioned in newspaper articles which have recently been posted to the csy2k newsgroup.

We should keep in mind that Ed Yardeni has a PHD. in economics. You don't get that degree without having a through knowledge of the capital budgeting process and accounting practices. He and the others are using the 10Q/10K reports to judge progress because that is the only information that is readily available. Yardeni has been tracking this data for a long time and he should be able to draw some reasonable conclusions from it.

-- Dave (dannco@hotmail.com), May 08, 1999.

Rob,

Can you get a yahoo or other free online email account and email me?

-- Stan Faryna (info@giglobal.com), May 08, 1999.