Had the rest of the world followed the old Soviet Union’s Communist regime in building the ubiquitous five-year plan, the so-called Millennium time-bomb would have already been defused by now. A five year plan would no doubt have forced businesses and governments to wake up in plenty of time to the idea that in five years’ time they would be coming to the end of the millennium, and that most of the world’s computer systems would potentially be unable to handle the roll-over to the date 2000, or 00 as it is stored in so many of these systems. As it is, there are now some 661 days to go, and only now it seems are some companies, and some governments, beginning to face the problem head on.
By Joanne Wallen
The UK government, in its second Budget since assuming power last May, is next week expected to introduce tax breaks to enable companies spending money on Year 2000 fixes to treat the expenditure as a revenue item rather than capital expenditure, thus allowing them to offset the whole expense against corporation tax in the year the expense is incurred. Certainly, this will be a welcome shot in the arm to any company starting the work any time from now and for the next eighteen months. However, it applies only to fixes of legacy systems and software, and not to any new millennium-compliant computers or software bought to replace legacy systems in order to get round the problem, which will still attract capital allowances (the tax equivalent of depreciation), at the normal rate of 25% a year. Conversely, the UK’s Accounting Standards Board has recently issued the exactly opposite directive, preventing companies from capitalizing these costs in the year of work and thereby boosting short term earnings, in their actual accounts, since tax rules and accounting rules are different. The question is, has this come too late?
No tangible business benefits
It has been well-documented that one of the biggest problems facing information technology managers over the past couple of years, has not been total ignorance of the problem, but rather an inability to convince the board to spend large sums of money on something that would generate no tangible business benefits or return on investment. The more these hapless IT managers realized how much the problem was going to cost to fix, the less they were able to present the true picture to their board, especially when many felt they would be blamed for the company having the problem in the first place. Had the UK government, or any other for that matter, since this is a totally global problem, offered such tax incentives even last year, then surely thousands more companies would have started the work in good time, and the bomb would not be ticking so loudly. Of course, one of the reasons governments have been slow to offer help and guidance to companies is that their own computer systems are likely to be the worst hit. Nevertheless, it seems that only now is the world waking up to its global responsibility in this matter. Until this year, it was almost impossible to get a major corporate to talk about the scale of the problem within its organization, far less to disclose exactly how much money it would cost to fix it.
Crawling out of denial
While industry analysts such as the Gartner Group were quoting worldwide sums of $300bn to do the fix, and a further $300bn in litigation arising from Year 2000 failures (CI No 3,030), and Year 2000 specialists such as Viasoft Inc were launching tools and products to help with the work and seeing their stock prices rocket (CI No 2,904), the rest of the world was accusing these people of ‘scare-mongering’ to fuel their own financial gain. The big corporates and financial institutions, who could and should have been leading the way for their smaller brothers and sisters, instead chose a path of ‘denial’, smiling benignly when asked about the scale of the problem, and refusing to even acknowledge there was a problem. As late as last year, only one or two organizations had dared to stand up and be counted by admitting how much the fix was going to cost. This, it seems, is because most organizations felt they would lose competitive advantage by revealing this information. Even now, there are probably many large companies who will not impart this information. However, slowly, the facts are beginning to emerge. Two of Britain’s biggest companies, pharmaceutical giant Zeneca Plc and insurance firm Royal & Sun Alliance have each said they expect to spend around 100m pounds to ensure their computer systems are compliant with Year 2000 and the unfortunately-timed EMU Economic and Monetary Union fixes as well. Last month, UK food and toiletries giant Unilever Plc estimated its millennium problem would cost it between 250m and 300m pounds, and Reuters Holdings Plc put a figure out of 73m pounds. In the US, brokerage firm Merrill Lynch & Co last week said it expects to spend $200m over the next year fixing its ‘remaining’ Year 2000 problems. It believes its total costs will be more like $275m. At last, the world is crawling out of denial. At least now, small and medium businesses which have probably been petrified to even begin addressing the problem, now have some role models to follow, and can see how seriously the big firms are taking it and how much they are investing in fixing it. With so little time to go, it would be impossible to ‘scare- monger’, impossible to over state the potential disasters that may befall us in January 2000 and beyond. The only thing to be done now is act. UK companies can say thank you to the government that there will be some financial comfort come next week’s budget, and one thing is certain, those who are not prepared to invest time and money now, will not be around to count the costs in two years’ time. Only those fixing the problem now need think about that five-year plan.
