UPDATE - Y2K Fixes Didn't Come Cheaply for State Firms

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Y2K Fixes Didn't Come Cheaply for State Firms

Brad Hoeschen

Now that Y2K is over, Wisconsin executives say spending millions of dollars to guarantee that their computer systems would recognize Jan. 1, 2000, was like buying an insurance policy with a big price tag.

Among Wisconsin's 30 largest public companies, the average cost of fixing the Y2K glitch was almost $20 million and the total price tag averaged more than $64 million from late 1996, when companies first realized there could be problems.

Firstar Corp., Wisconsin's largest bank holding company, spent $58 million over three years upgrading computer technology.

"There was a risk element involved in your ability to continue doing business," said Bill Chenevich, vice chairman of Milwaukee-based Firstar. "Deciding not to spend money on this just wasn't an option."

Banks and other financial service companies in the state spent an average of $4 million more than manufacturing and technology companies because the banks were watched closely by regulators, according to annual reports from banking companies.

Banks have federal insurance, and regulators were posted full time in banks, setting deadlines for certain levels of compliance with Y2K guidelines, Chenevich said.

"Every six months or so, we had a deadline for testing a system or having a component of the company ready for the date change," he said.

While that may have increased costs for financial institutions, other companies may have had hidden costs in their Y2K budgets, said Kate Kaiser, associate professor of information technology at Marquette University, Milwaukee.

A number of companies took advantage of Y2K to get new technology and make upgrades to software, she said.

"For the first time, the information technology department was very powerful," said Kaiser, who served as a consultant for many companies that tried to squash the Y2K bug. "Those people couldn't get the attention of management until Y2K came along."

Companies also may have some hidden costs they didn't anticipate when they started their Y2K repairs.

Increased staffing needed to test the systems, education and training for current employees and checking every application on every computer to make sure it was compliant with the date change were all unexpected costs for companies.

Those costs were likely never factored into the companies' tally of Y2K expenses.

"Most companies are reporting what they spent on hardware and software, but that is not the only costs they incurred," she said.

Fiserv Inc., a Brookfield data-processing firm for the financial services industry, had one of the more expensive Y2K tabs in the state, spending $75 million over three years.

Unlike many companies, Fiserv was able to sell its Y2K knowledge once it perfected its own systems, said Leslie Muma, president and chief executive officer of Fiserv.

The company generated about $8 million to $10 million in revenue from consulting services to banks concerned about correcting Y2K problems.

"That didn't really impact our earnings because we had $1 billion in revenue," Muma said. "But we were able to get revenue out of something that was exclusively an expense for other companies."

The unexpected cost of fixing the Y2K bug didn't take a bite out of earnings because Fiserv was able to carve it out of an existing budget, Muma said.

"We spend about $150 million a year on research and development," Muma said. "Over the three years, we used about 15 percent to 20 percent of the R&D budget to cover our Y2K costs."

Firstar also used its normal operating budget to pay for Y2K costs, Chenevich said.

The bank holding company had the added problem of making sure any banks it acquired were Y2K compliant.

"It is difficult to say if our costs exceeded our original projections because we had to adjust our expectations every time we bought another bank," Chenevich said.

Even as Wisconsin's largest public companies were writing checks for a combined $2.3 billion to cover their Y2K expenses, none say it wasn't worth the expense.

"They all know that if they hadn't shelled out that money, they might not be in business today," Kaiser said. "There is a lot of motivation in that kind of possibility."

6/26/2000 http://www.bizjournals.com/account/sign_in/

-- (Dee360Degree@aol.com), June 28, 2000

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