Businesses tally the costs of Y2K : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Week of May 1, 2000

From The Business Journal

Businesses tally the costs of Y2K Bank of America Corp. and First Union Corp. had a constant mantra on spending on the "Y2K" issue -- they would spend whatever it took to make sure customers could depend on service Jan. 1.

For Bank of America, that meant $532 million as of Dec. 31. First Union spent about $61 million. The two Charlotte banking giants were among the region's biggest spenders on the project to make sure the nation's commercial computers -- which used a two-digit date code for the year -- would not lock up when the date rolled from "99" to "00."

They and other public companies have toted up the Y2K costs, and they are being disclosed in annual reports filed during the past several weeks with the U.S. Securities and Exchange Commission.

When Charlotte's largest bank published its first estimate for the costs of addressing the problem, in March 1998, it estimated the expense at $120 million. But it was then NationsBank Corp. and had not yet bought BankAmerica Corp. to become the nation's largest retail bank.

"When we made that first estimate, we were looking at one company," says Julie Turner Davis, a Bank of America spokeswoman who worked on the company's Year 2000 Project since mid-1998. "Then we had to add in the estimate from the old BankAmerica, and then we had the whole issue of consolidating separate systems."

Altogether, more than 3,000 people at Bank of America worked on the project from 1997 to the beginning of this year.

Nor was Bank of America the only company whose initial estimate turned out to be low. In 1998, First Union predicted it would spend $42 million to $45 million on Y2K projects by the time the millennium arrived. But that estimate was made before First Union's acquisition of CoreStates Financial Corp.

Duke Energy Corp. also grew enormously (doubling its assets) and changed its name (from Duke Power Corp.) during the course of its Y2K project, which took three years-plus. But Sally Whitney, the project's director, told the top Duke brass in late 1996 the undertaking would cost $50 million to $60 million. As of Dec. 31, the energy company spent $58 million.

"As we learned what we were about, we found more efficient and effective ways of preparing our systems," says Whitney, who had 200 people working on the project at its height in 1998. "We used what we learned early on as we grew the size of the company. That $58 million felt pretty good by the time we were through."

Both she and Davis say the projects did more than prepare computers for the change of the century.

"We were able to consolidate our information about our vendors, systems and inventories," Davis says. "We were able to look at these things across our entire company really for the first time."

Doug Ey, a specialist on Y2K issues at law firm Smith Helms Mullis & Moore, compares that effect, in its small way, to the unexpected results of the space program in the 1960s and 1970s.

"It's like, we went to the moon and we also got Teflon," Ey says. " A lot of companies have cleaned up their supply chain because of what they learned."

Also, he says, the process sharpened the management skills of information technology and information systems departments. He says that it gave many technology managers their first experience with a high-priority issue that had an absolute deadline.

Not everyone is so sanguine. International Data Corp. analyst John Gantz has a grim view of the lessons corporations didn't learn from Y2K.

"I think there's a tremendous amount of `emperor's new clothes' going on," says the Framingham, Mass.-based researcher. "The hysteria could easily be repeated."

Gayle Warner, a spokeswoman for The BFGoodrich Co., which spent $114 million on Y2K, sees nothing that smacks of hysteria.

"It was so much a part of our routine long-range planning that it was a complete non-event for us," Warner says.

A point that many companies have been at pains to make is that little of the money spent on Y2K amounted to what they call "incremental spending" -- money taken from the bottom line to pay for special activities. Most of the work was done by employees that would have been on the payroll anyway, working on systems they would have worked on anyway, they contend.

BFGoodrich, for instance, estimated that it would pay only about $5 million to outside companies for its Y2K work.

Still, the passage of the new year has made a difference to companies in the Y2K business.

Charlotte-based Personnel Group of America Inc. reported a slowing in business in the first quarter as it deals with a slowdown in the need for information technology consultants in the post-Y2K era. The company reported $4 million of net income on revenue of $216.9 million for the quarter, compared with $7.1 million of net income on revenue of $229.6 million during first quarter of 1999.

Not all the bills are in yet. Coca-Cola Bottling Co. Consolidated expects to spend about $5 million to $6 million in house, but it reports spending about $4 million as of Dec. 31. (The bottler does not include $4 million in hardware costs in that total.)

Delhaize America Inc., Salisbury-based parent of the Food Lion supermarket chain, still has $14 million to pay on Y2K issues.

Whitney says a small amount of work has continued into the new year. At Duke, for instance, the project technically continued through Feb. 29.

"We found a few Leap Year issues, and we wanted to make sure we got past that date," she says.

Nader Elguindi, founder and leader of local Web developer Cydecor, says the Year 2000 compliance turned technology from a back-burner issue to a top priority list. Now that the money doesn't have to go into Y2K issues, Elguindi expects to see senior managers direct funds to other technology issues, including how to integrate the Internet into their business plans.

"Now they've got the money and the attention of senior managers," he says.

Staff writer J.C. Zoghby contributed to this story.

-- Martin Thompson (, May 01, 2000

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