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    First of three articles

    By Rajiv Chandrasekaran
    Washington Post Staff Writer
    Sunday, August 2, 1998; Page A1

    At the McLean headquarters of Freddie Mac, the mammoth housing finance corporation, one in 10 employees has been assigned the painstaking task of poring through 12 million lines of gobbledygook coding that runs the company's mainframe computers.

    At the Los Angeles International Airport, a dozen technicians have spent weeks finding and documenting every piece of electronic equipment in the 6 million-square-foot facility, from the basic switches that turn on luggage conveyor belts to the sophisticated security cameras in the international terminal.

    Even at the comparatively tiny Inner Ski store in Gaithersburg, owner Frank Goldenberg has devoted much of his spare time in the last few months to meeting with computer salesmen and reading instruction manuals for new software packages.

    The scene is the same at almost every business and government agency around the globe, from giant banks in London to family-run poultry processors in Georgia: The crucial task of repairing computer systems so they will work properly in the year 2000 has spurred a vast mobilization of people, money and executive attention with few parallels in history.

    With only 516 days before the new century begins, many of the world's large corporations have yanked hundreds of workers off their regular jobs, hired legions of technical consultants and earmarked many millions of dollars for new electronic equipment. Known in geek-speak as "Y2K," the glitch has become the top management concern at many organizations, dominating boardroom discussions and forcing the postponement or cancellation of other business projects.

    Just how much it will cost to vanquish the date problem still is unclear. The Federal Reserve predicts that U.S. businesses will have to spend at least $50 billion, while Triaxsys Research, a consulting firm that has analyzed Securities and Exchange Commission data, estimates that the 500 biggest public U.S. companies alone will have to shell out about $49 billion. The federal government, whose price tag for repairs has increased steadily over the last year, must allocate at least $5 billion to fix its computers.

    All told, industry analysts predict that the worldwide bill for the massive repair effort will come in somewhere between $300 billion and $600 billion, eclipsing the out-of-pocket costs of such late-20th-century cataclysms as the Persian Gulf War, the 1993 Midwest floods, the savings and loan bailout in the 1980s and the 1995 earthquake in Kobe, Japan.

    "It's one of the most expensive, labor-intensive, time-consuming problems mankind has ever faced," said Ann K. Coffou, a Y2K analyst at the Giga Information Group, a consulting firm in Cambridge, Mass.

    At Richmond-based Crestar Financial Corp., for example, 200 workers have been assigned to sift through about 10 million lines of computer code vital to the bank's day-to-day operations. "This is bigger than any other corporate initiative in our history," said Billy Stephenson, Crestar's project manager. "All of our forces have been mobilized to one single focus."

    Shortcuts and Detours


    The Y2K problem stems from the fact that millions of electronic devices – from mainframe computers that process payroll checks to heart monitors in hospital intensive-care units – were programmed to process only the last two digits of a year, assuming that the first two would be 1 and 9. That convention was first adopted as a cost-saving measure decades ago when computer memory was at a premium and every character counted; later on, many programmers continued to use the two-digit date shortcut through force of habit. When the millennium arrives, however, the machines will understand the year "00" not as 2000 but 1900 in their calculations, potentially causing them to shut down or stop working properly.

    The good news is that the date shortcut will not have a significant impact on most consumer electronic devices. Some personal computers will be affected, but they can be repaired with software "patches" freely available on the Internet. Even on larger systems – particularly old, clunky mainframes – fixing the computer code is a straightforward process, at least in concept. But with those systems – and especially with smaller, specialty devices like heart monitors, the brains of which are contained in a tiny microchip embedded somewhere inside the shoebox-size unit – rooting out every occurrence of the glitch, performing the repairs and testing the fixes is incredibly time-consuming.

    As a result, a growing cadre of computer experts and business analysts is issuing gloom-and-doom predictions about the state of the world in January 2000. Their scenarios start with minor disruptions in daily life: Airplane flights will be delayed, phone service won't work in some countries, traffic lights won't be timed properly, factory workers will need to fill out their timecards by hand. Other forecasts warn the sky will fall: Power failures will be widespread, assembly lines will grind to a halt, automated teller machines won't dispense cash, government benefit checks will be delayed, hundreds of businesses will go bankrupt.

    Many of those ringing the warning bell are the techies trying to fix the problem. More than 50 percent of technology professionals recently polled by Chief Information Officer magazine said they would not fly on a commercial airplane on Jan. 1, 2000. Another survey, conducted by the Gartner Group consulting firm, found that 38 percent of computer industry executives are thinking about withdrawing their personal assets from banks and investment companies.

    Much of that fear stems from what businesses and government agencies are – and aren't – reporting. As of June 30, only 85 of the 500 largest publicly traded U.S. companies had heeded an SEC recommendation to disclose estimated Y2K costs. Those that did, however, said they have spent only 25 percent of the money they've budgeted for the problem.

    "That's scary," said Steven L. Hock, the president of Missoula, Mont.-based Triaxsys, which has analyzed the disclosures. "Spending is supposed to keep pace with the repair work. That means many of these guys are still only a quarter of the way there."

    The numbers are similarly sobering for the federal government: Only 40 percent of its 7,336 "mission critical" systems have been fully repaired; still remaining to be fixed are many that control air traffic, process income-tax returns and handle Medicare payments.

    More than four in 10 U.S. companies, according to one survey, already have encountered Y2K-related system failures. Computers at Unum Life Insurance Co. of America in 1995 automatically deleted 700 records from a database that tracks the licensing status of brokers because a program interpreted some of the expiration dates as 1900. When Phillips Petroleum Co. ran a Y2K test on an oil rig in the North Sea, a safety system to detect emissions of deadly hydrogen sulfide gas shut down. And last year, when Chrysler Corp. turned clocks forward at one of its assembly plants to simulate the year 2000, the security system failed, preventing people from leaving the building.

    Among the companies already reporting to the SEC, some staggering repair bills are anticipated. For example, General Motors Corp., the nation's largest company, expects to spend $565 million. The expenses are forecast to reach $500 million at Philip Morris Cos., $600 million at Citicorp, and $400 million at MCI Communications Corp. At the same time, those firms and others say they are on track to have the problem licked before December 1999.

    If every organization fixes its important systems in time, economists say, the Y2K glitch – even with a worldwide repair tally of $600 billion – won't have a dramatic impact on the global economy. But many technology specialists contend that an on-time repair is unlikely, particularly for small businesses and foreign companies, which are well behind the Fortune 500 in dealing with the problem.

    "There's too much that needs to be fixed and not enough time to do it," said Edward Yardeni, chief economist for Deutsche Bank Securities.

    In many cases, though, picking up the pace of Y2K remediation work is difficult. There is a shortage of programmers proficient in older computer languages such as Cobol. Many software companies still have not released revised products that businesses need for their repair projects. And some electronic equipment manufacturers, worried about lawsuits, have been reluctant to share test data.

    Consequently, Yardeni believes there is a 70 percent chance the U.S. economy will suffer a slowdown as bad as the one caused by the 1973-74 oil crisis. "Computers are just as vitally important for running our economy as oil," he said. "It's not going to be doomsday, but it will be a wicked recession."

    Whether Yardeni and other like-minded pessimists are more like Chicken Little or Paul Revere is open to question.

    Some dismiss such predictions as alarmist, saying that large companies appear well on their way to solving the problem with time to spare. Even if there are failures at some small businesses, they contend, that won't send the economy into a tailspin.

    "If there are glitches, and there always are, companies expect to manage their way through them as they do in power blackouts, and as they did when the AT&T and [America Online Inc.] networks have occasionally shut down," the securities firm Merrill Lynch & Co. said in a research report issued last month.

    "If it happened today, we'd be in serious trouble," said John C. Ballock, a Y2K manager with Computer Sciences Corp., a technology firm that's helping Freddie Mac fix its systems. "But there's still time to get most of the job done."

    Article continues

    © Copyright 1998 The Washington Post Company

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