Harbingers of Y2K - Industry Trend or Event

Everyone always asks me my predictions for the Year 2000 transition. I wish I could give a definitive answer. I feel like a weatherman trying to predict the impact of an approaching storm many days before its arrival. Will the storm reach land at maximum intensity, causing a wide swath of destruction? Will it turn offshore, merely brushing us with some winds and heavy rain? Or will it peter out entirely? The answers depend on the efforts and preparations of many companies, governments, and individuals. Have they taken the problem seriously enough? Did they have enough time to complete their critical projects?

It is hard to know what reality is, and to predict what will be, given the hype and conflicting reports from the media, companies, and government circles. The "official" story is always, "We're right on schedule and anticipate no problems." The rumor mill always says, "Armageddon is coming." Consultants who are working on the problem say nothing, silenced by nondisclosure agreements.

I wish I could accurately predict the future. The information would be extremely valuable. It would help determine corporate contingency plans and the amount of money to invest in preparing for those contingencies. It would help me determine what my personal Year 2000 preparations should be, and would certainly give me a wonderful investment strategy.

If I consider the situation, what I hear from my clients gives me hope. On the other hand, what I hear from callers and emails scares me. How can I cut through these conflicting messages to find out the true state of affairs? If I could, I'd be rich.

But, maybe there is a way that I can get a hint of what's to come.

Watching the Signs

Our predictions of a storm's track and intensity become increasingly accurate as its arrival date draws closer. Barometric pressures begin to change, the seas get rougher, birds and animals start to behave strangely, and winds slowly increase. One factor alone is not enough for an accurate prediction, but a series of factors together gives us a sense of a trend. Watching the rate of change in each factor over time predicts intensity. For example, we expect winds to increase before a storm, but we have a very different situation if wind speeds double hourly while the storm is still well offshore than if the winds build gradually.

What factors should we watch for our Y2K predictions? I suggest the following:

* the rate of publicly reported errors;

* SEC data on company progress;

* audit data; and

* general public reaction to Y2Khype.

The rate of publicly reported errors is our anemometer; it measures the force and velocity of our Y2K wind. We can think of the Year 2000 problem as resembling a bell curve. Software and hardware that process future dates encounter 21st century dates before the Year 2000. Remember those notorious credit card failures. Credit cards with three-year expiration dates began failing as early as 1997 because systems weren't prepared to handle new cards with "00" expirations. These system failures represent the upward curve. Conversely, systems that look to the past don't start to fall until they actually cross into the next century. The top of the curve occurs on January 1, 2000. But it takes time for that bell curve to build up and may take even longer for it to wind down. Watching the rise and fall of publicly reported failures should let us follow the progress of this curve.

These failures are easy to find and follow. They are visible because they usually involve direct public impact. Public failures cannot be hidden, covered up, or quickly resolved behind the scenes.

Companies are forced to acknowledge these failures, and the media thrives on them. These failures are the tip of the iceberg and represent hundreds of other, nonpublic failures that are quietly buried or diffused. Companies do not exactly relish negative press coverage and can hardly be expected to alert the press whenever they encounter Year 2000 problems. Think about it this way: Do you know of any Year 2000 failures that percolated to the surface in January 1997 or January 1998?

If the number of public failures remains low and builds slowly before the Year 2000, we can infer that:

* Companies have worked on the Year 2000 problem;

* They performed a thorough analysis, paid attention to "time horizons to failure," knew which systems would fail in advance of 2000, and fixed those systems in the tight order;

* They fixed their systems correctly; and

* They performed adequate testing.

Or:

* Companies are very skillful at problem recovery.

If the contrary proves true; that is, the number of public failures rises dramatically in 1999, then we can only imagine the number of failures that are occurring behind the scenes. If this happens, we will know that many companies are inadequately prepared, and that little time remains to fix the situation. We will speculate that an inability to fix and avoid these larger problems means that hundreds of smaller problems may be bungled or simply not found. We will have to ramp up our contingency planning efforts, and be prepared for some major upheavals in our personal lives.

Fortunately, the data remains positive so far. To date, we have not witnessed an overwhelming number of publicized errors. There were no wholesale failures or cascades of problems due to Year 2000 glitches. Relatively few errors have been reported, and the majority of those errors were relatively uneventful and fixed before they could cause major disruptions. Even the transition into 1999 was mostly smooth despite the potential problems from the large number of systems that look forward one year in time. (For interested readers, Clarity Consulting Inc. maintains a list of publicly reported failures at www.clarity-consulting.com.)

Public Performance

Another important factor is watching the Y2K progress of publicly traded companies. By requiring these companies to report their progress, the SEC has provided a good indicator of storm intensity and problem length. Triaxsys Research of Missoula, Montana, performed a study of the top 1,000 U.S. companies, tracking their Y2K progress by analyzing budgetary spending. By the end of the 4th quarter of 1998, these companies were, on average, 58% complete with their projects and progressing at a rate (4% per month) sufficient to ensure timely completion.

While this news is primarily positive, averages hide considerable risks from laggards. The bottom 25% of the sample were less than 30% complete and are progressing at only 2.7% per month, and one major company had spent only 4% of its budget! Unless the laggards considerably accelerate their performance in the coming months, the Y2K storm will certainly make landfall and cause measurable damage.

Audit findings provide additional insight. Multiple sources, including MaatriDigm Corp., Reasoning Systems, and the Gartner Group report remediation defect rates uncovered during software audits ranging from 100 to 1,000 defects per million lines of code. Often, these defects were found in software that had already undergone certification testing. Many of these defects are in obscure areas of code and will stay latent until the right mix of data triggers them sometime in the future. Unless improved software testing reduces these defect rates over the next six months, we can expect a long, slow tail-off for the Year 2000 storm.

The final factor is to observe the general public. By paying attention to rumor mills and mass media hype, we can gain a sense of whether Y2K fears will create a self-fulfilling prophesy. Just as storm predictions cause people to stampede to stores to hoard milk and flashlights, Y2K could cause problems and shortages even if the level of actual problems remains low. While Y2K has definitely reached the masses, it's still too early to measure its impact. Much will depend on the level of media responsibility and whether any high-profile public failures occur over the next few months.

What's my prediction given these factors? I'm becoming increasingly optimistic that Y2K, at least in the U.S., will be isolated thundershowers and heavy rain rather than the storm of the century. While not perfect, progress is moving in the right direction and the hard work of many dedicated people seems to be keeping the bulk of the storm offshore. But I'll keep monitoring my factors and reserve the right to change my prediction if necessary. After all, weathermen have been known to miss their predictions occasionally...

Ian S. Hayes is principal of Clarity Consulting, South Hamilton, Mass.

E-mail him at [email protected].

COPYRIGHT 1999 Wiesner Publications, Inc.
COPYRIGHT 2000 Gale Group