The ugly subject of the data-handling headache created by the turn of the century - what's called the millennium problem - just grows and grows.
The U.S. government announced recently it had raised its own estimated costs of fixing its databases to $2.5 billion from $2.3 billion, and cost projections for U.S. business in general start at around $600 billion, with a typical large insurance company facing changes to millions of lines of computer code, taking tens of man years. Already companies are having problems issuing three-year policies.Meanwhile, amid a flurry of press coverage and other warnings, a report from ADVice, an insurance consulting company based in New York, paints an even gloomier picture. Ann Deering, ADVice managing partner and author of the report, warns that business-to-business relationships will break down over the issue and that risk managers have to be aware of the possibilities for disaster.
''If the problem isn't addressed correctly,'' said Ms. Deering, ''It can potentially devastate your business.''
DEFINING THE PROBLEM
For those who've let this issue pass by, here's the problem:
When computer databases were being set up in the '60s and '70s, information bandwidth, or the number of electronic slots into which numbers or letters could be fitted, was at a premium because microchip technology had not yet arrived to squeeze data into very small spaces. So the effective standard in the industry for registering the date on any piece of data - whether insurance policy, medical record, or rainfall statistics - consisted of two digits for the month, two for the day and two for the year.
Increasingly, companies, and especially insurance companies, rely on automated data handling through computers to alert them to, say, a policy expiry. Now that the last two digits of the date are going back to ''00,'' computers will not be able to make these calculations. And so, in theory, every line of data in every computer in the world has to be individually altered to give it four digits to register the year correctly.
INVOLVE THE WHOLE COMPANY
But it's not just a problem for the techie boys. The whole company needs to get involved, Ms. Deering advises.
''There is a clear disparity between board directors' and finance and information technology managers' awareness of year 2000 problems, and their understanding of how year 2000 is going to affect their businesses,'' said a 1996 market survey conducted in Britain. ''Businesses still see year 2000 projects as a problem for the IT department, rather than something that the board and the business as a whole has to tackle.''
Legislators in Congress have also taken an interest in the subject and prodded U.S. government agencies into action. Most are well aware of the problem, congressional staff say, although a few slackers, including the air traffic control system, are raising concerns.
''Congress is sounding the alarm and will keep sounding it until this problem is solved,'' Rep. Steve Horn said in an interview. Mr. Horn, chairman of the Government Reform Committee's Management, Information and Technology subcommittee, has taken testimony from a variety of government and private-sector experts on the problem.
''I have learned that the real challenge it poses is to management,'' Mr. Horn said. ''Software experts are capable of fixing the problem, but can management understand what is at stake, make it a priority, organize a plan and allocate resources so the technical experts can do their job?''
And the problems don't stop there. A company might fix its own year 2000 problem, but there's no guarantee that the companies it does business with will have too. Ms. Deering predicts companies that do not respond properly will be sued by clients, shareholders and others.
Many agree. Caper Jones, chairman of Burlington, Mass.-based Software Product Research, estimates the cost to U.S. companies of fixing year 2000 at $4 billion for data conversion, $2 billion in litigation fees and up to $100 billion in damages for firms that fail to be fully compliant, or an average of $750,000 for a Fortune 500 company.
ADVICE TO RISK MANAGERS
Ms. Deering urges risk managers not only to arm themselves with knowledge about the year 2000 issue, but to get involved in dealing with it. She suggests setting up a company steering committee to plan and oversee the work on the data files, with special attention to potential liability exposures.
Mr. Jones of Software Product Research says litigation might spring from clients whose finances or investments have been damaged by failing to alter data correctly; or from shareholders of companies whose finances are damaged. There might be class-action suits from customers of computers or software packages.
Also, since most companies are dealing with the year 2000 problem by outsourcing the data changing, there will likely be litigation against contractors or consultants who got it wrong. Mr. Jones can even anticipate deaths and injuries occurring because of the year 2000 problem.
The message to all companies is clear. Action and forethought are essential.