Bruce Webster analysis of Senate report
The following is an on-the-record, first-pass commentary by Y2K
expert Bruce Webster on "Investigating the Impact of the Year
2000 Problem, a report issued on March 2, 1999 (but dated February
24, 1999) by the U.S. Senate Special Committee on the Year 2000
Technology Problem.
Webster is the CTO of Object Systems Group, Co-Chair of the
Washington, D.C. Year 2000 Group, and author of "The Y2K
Survival Guide: Getting To, Getting Through, and Getting Past
the Year 2000 Problem." He has written about Y2K in Newsweek,
interviewed for NBC and CBN News, televised on PBS, MSNBC, and
C-SPAN, and has been cited in Barron's, National Journal, American
Banker, and a variety of articles and news reports.
Overall Evaluation
Adjustments to Previous Y2K Estimates
Utilities
Healthcare
Telecommunications
Transportation
Financial Services
General Government
General Business
Concerns
Pharmaceuticals
Food Industry
Chemical Manufacturing
Litigation
International Preparedness
Overall Evaluation
The Senate report is the first reasonably independent, bipartisan,
and objective reference work on Y2K. As such, it will become the
canonical Y2K reference and will undoubtedly be (and should be)
heavily cited in the weeks and months to come. It represents
excellent work and still cautiously points out its own limitations.
The report will likely be far more trusted than anything to come
out of the President's Council on Year 2000 Conversion.
The report is also the first official government document to
establish, in detail, the existence and likelihood of Y2K
consequences between the two oft-cited extremes of 'a bump in the
road' and 'the end of the world as we know it.' This dichotomy is
false, and has been a key issue of mine and is the reason why The
Y2K Survival Guide gives a set of 11 scenarios of escalating
impact (see TY2KSG, Chapter 14, "Forecasting the Storm").
The report details Y2K problems within the U.S. more serious than
I expected and belies the upbeat tone reflected in some of the
sound bites I saw at the press conference held this morning by
Senators Bennett and Dodd.
I'll comment specifically on some of those below.
It only take serious issue with one comment in the executive
summary: "In general, large companies have dealt well with the Y2K
problem, due to greater resources." While large companies have
certainly spent a lot of money on Y2K, most have started late and
have watched budgets and schedules constantly escalate (as the
report notes).
The report, while doing an outstanding job of summarizing the
committee's research and findings in the sectors covered, makes
little attempt to integrate those findings into an overall picture,
nor does it address the individual or collective impact of the Y2K
problems for those sectors on the national economy. This is
probably the single greatest weakness, though it may be a deliberate
choice; when you go through all 160+ pages and sum up all the many
areas of "grave concern", the result is darker than you might think
from the executive summary alone.
Adjustments to My Y2K Estimates
The problems and issues documented in the report readily match
those predictors given in The Year Y2K Survival Guide, Chapter
14, for Scenario Level 5, and one could argue that many point to
Level 6.
On the basis of this report, I am now shifting my estimates for
the 11 scenario levels:
*****************************************************************
LEVEL OLD NEW DESCRIPTION
EVAL EVAL
*****************************************************************
Level 0 1% 0% Just Kidding
Level 1 5% 1% A Bump in the Road Ahead
Level 2 15% 5% Well, Maybe a Large Pothole
Level 3 20% 10% The Dow Drops Some More
Level 4 25% 15% It's The Economy Stupid
Level 5 15% 35% The 1982 Recession, Revisited
Level 6 10% 20% Make That The 1972 Recession
Level 7 5% 10% Things Get Worse
Level 8 3% 2% Brother, Can You Spare a Dime?
Level 9 1% 1% Welcome To The Third World
Level 10 1% 1% It Can't Happen Here
******************************************************************
Even these adjusted probabilities may be optimistic, since they
still indicate a 30% chance of escaping a recession next year
(Level 4 or lower).
However, our national economy continues to confound people wiser
and more knowledgeable than I, so I leave the door open for that
possibility.
My personal prediction for the last several months has been Level
5. This report, on top of my own research and analysis since the
start of the year, leads me to move that estimate up to Level 6.
Electric Utilities
The report sounds an upbeat tone at the start with regards to
power, but the details given sound less convincing, especially
with regards to where power companies stand in the Y2K
remediation process (inventory, assessment, repair, testing,
implementation, contingency planning; see p. 25) and the number
of firms not responding to surveys, either by the committee or by
industry organizations.
As a result of reading this report, I now consider the power
outage impact to be somewhere between Level 5 (10% suffer some
form of outage, however brief) and Level 6 (most urban/suburban
dwellings suffer some period of utility disruption). Specifically,
I would guess that at least 25% of households will have to deal
with requests for power rationing(equivalent to what often happens
during a heatwave) or transient brownouts and blackouts.
Oil and Gas Utilities
The report recognizes and documents our dependency upon petroleum,
some 50% of which comes form foreign countries, most of whom are
quite far behind on Y2K (cf. Figure 8 on p. 32).
It also documents the poor response rate on its industry survey
(only 10% of firms polled, though they represent a near or clear
majority of capacity), the late start such firms have, and the
unrealistic estimates for a quick end to their Y2K projects.
The report does not adequately address the likely consequences to
the U.S. economy of significant Y2K issues in the oil industry.
Note that the Arab Oil Embargo of 1973 send the US (and the whole
world) into a significant recession and caused US unemployment to
double. Also note that OPEC and all the other oil-producing
countries would love some excuse to limit oil production and
raise oil prices.
Water Utilities
I have long stated that more people would be impacted by problems
with water utilities than those with power utilities. I have
upped my estimate of the latter above, but this section suggests
that the former may stay ahead. Again, the report notes the
mismatch between where the water agencies are in their Y2K
remediation process and their assurances of being done on time.
Healthcare
I typically cite healthcare and transportation (esp. air) as being
the two most significant Y2K problems areas for the US public
outside of the general economy. This report underscores that and
paints a picture even more bleak that I originally thought.
This report, in my opinion, paints at least a Level 5 & 6 impacts
in healthcare (Level 5: "HCFA [Medicare] problems cause cutbacks,
closures, bankruptcies in healthcare industry; media keeps track
of 'HCFA death count'." Level 6: "Significant increase in
hospital deathsdur to shortages of supplies and medications,
interruptions in utilities, unrepaired equipment.") and possibly
even a Level 7 ("Healthcare centers implement informal triage in
admittance policy. Medical research centers close or are set
back years in reserach due to power, equipment malfunctions.").
Telecommmunications
I have not been terribly concerned about public telecommunications
within the United States, though there have been persistent rumors
about one of the major long-distance carriers being significantly
behind its Y2K effort.
The report does point out serious Y2K problems with private branch
exchanges (PBXs) used in many businesses as the internal phone
system (p. 55). This jibes with comments made by Art Gross, while
he was still CIO of the Internal Revenue Services, at a Y2K
breakfast in Northern Virginia in the fall of 1997, where he
stated that the IRS had some 7,000 PBX systems and that they
apparently were not Y2K compliant.
The report highlights that the big issue is, and remains,
international telecommunications.
Transportation
As noted, this has been one of my two major concerns for
functional Y2K problems within the US. The report supports my
concerns, noting that 62 percent of the transportation firms
surveyed by the committee in mid-1998 were still in the assessment
phase, yet almost all felt they would be done in time.
For those of us (and there aren't many) who have seen a large
organization go through the complete Y2K process, this is very
hard to believe.
Aviation
One of the top ten Y2K myths that 'planes will fall out of the sky'
(see The Y2K Survival Guide, Chapter 4). The report likewise notes
that this is an extreme improbability. I'd love to see this phrase
eliminated from all future Y2K reporting; I know of no credible
Y2K analyst who has ever used it except in the negative, yet even
now news articles and reports still use it to open a Y2K story.
The report focuses on the FAA as a major concern. I concur. Note
that Jane Garvey, Commissioner of the FAA, stated last fall that the
FAA was "99% done" with its Y2K effort as of September 30, 1998.
Just a few weeks ago, John Koskinen, Chair of the President's
Council on Year 2000 Conversion, stated that the FAA was "95% done"
and would be finished by June 30, 1999.
One has to ask why it's taken 9 months to finish that last 1
percent, with some apparent lost progress in the meantime. The
GAO has expressed serious doubts about the FAA's ability to
finish in time, as the report cites; likewise, I have had
personnel working within the FAA's Y2K project state flatly that
there is no way the FAA will get its new air traffic control
mainframes installed, on line, and functioning in time.
The report only touches lightly upon what I think will be a major
issue: legal and liability issues. Here's a simple thought
experiment: what do you think SwissAir would have gone through if
the SwissAir crash off Nova Scotia had happened on January 1,
2000? If there are any questions at all about the National
Airspace Systems (NAS) (see p. 66) come Y2K, I believe that the
airlines' lawyers and insurance companies will advise serious
restrictions on flights.
Of course, the US State Department has already issues a Y2K
foreign travel advisory, and the report notes significant
unanswered issues about foreign air traffic.
I have stated since the fall of 1997 my prediction that air
traffic in the US will be at 20% of normal for the first three
weeks of January, 2000. I'm inclined to relax that a bit and say
20% for the first two weeks, 50% for the third week, 75% for the
fourth week, and back to 90% for February.
Even so, it is important to note the economic and operation impact
of such limitations, particularly with regards to mail and cargo
delivery, tourism, and general business operations.
Other Transportation Issues
The report does a great service in examining and dispelling the
persistent reports that most or all railroad switches have no
manual overrides. The report states that there are few safety or
environmental concerns regarding maritime transportation, but
does, however, go on to state that "disruptions to global trade
are highly likely."
The report states the technology dependency in the trucking
industry, but gives no information about either Y2K exposure or
progress.
The economic, and even social, impact of all these transportation
issues is not significantly addressed.
Financial Services
The report notes the financial services industry has had more Y2K
oversight and is farther along in its Y2K efforts than any other
industry.
Having first-hand experience myself, I agree. I will keep most of
my money in my bank accounts; I seriously doubt there will be any
significant problems with ATMs or credit cards, and if there are,
I'll write a check (which I presume most merchants would be
thrilled to take in the face of not being able to conduct business
otherwise).
That said, let me add a note of caution that I have not seen
elsewhere. It applies generally to businesses, but can be focused
on financial services, precisely because they are ahead of
everything else. The caution is this: a lot of Y2K-remediated
software has been put back into production without sufficient
testing and may cause an increase in operational errors right
now, not after January 1st. I have had at least three problems
crop up within an 8-week period (December 98/January 99) that
smack of buggy software.
These are:
* A dunning letter from a collection agency for a bill from a
long-distance provider that I was and had been current with for an
amount that I never owed. After repeated calls to both the
provider and the agency, the agency finally came back and said,
"Never-mind."
* A free-standing ATM (belonging to an actual bank) that put
itself out of service while I was in the middle of withdrawing
$300 from a checking account at a different bank on the morning of
December 31, 1998. The ATM gave me neither cash nor receipt, but
it _did_ go ahead and withdraw $301.50 from the checking account.
My initial complaint yielded only a letter that claimed there were
no discrepancies in the whole transaction chain and therefore I
would not be reimbursed. A second complaint directly to my branch
manager (who, thank heavens, actually knows me) got a "provisional"
reimbursement of the amount withdrawn, as well as all bank fees
and lost interest, but it still remains provisional, and I
have had no acknowledgement of any discrepancy.
* A form letter from a major credit card company (with whom I
have an account) stating that between November 1998 and February
1999, my account was either overcharged or undercharged on its
finance charges, that any overcharges would be reimbursed and any
undercharges would be forgiven.
Now, problems such as these show up once or maybe twice a year;
to have three of them within a matter of weeks makes me a bit
suspicious. I would advise people to start tracking their bills
and financial statements carefully now and not wait until year's
end.
General Government
The report has the best--and in some areas, the first--analysis
I've seen of Y2K's impact on various emergency and law
enforcement operations across the nation.
The report also firmly debunks the notion in some Y2K circles that
the Clinton Administration will use Y2K as a pretext to impose
martial law and even suspend the 2000 elections. In doing so, it
substantiates what I have said when asked whether I thought such
a course were likely or even possible, namely that neither party
in Congress would tolerate such an act for even an hour.
The report details the Federal government's approach to its own
Y2K remediation efforts, noting current classification of
agencies and departments into Ties One, Two, and Three (worst to
best, respectively).
The report points out HCFA [Medicare], the FAA, the Department of
Energy, and the Department of Defense as being those facing the
greatest concerns and/or work ahead of them. However, the report
is very silent on the IRS, even though the Department of the
Treasury is also a Tier One ("not making adequate progress") agency.
The report notes that "the Committee has serious concern about the
Y2K readiness of state and local governments." I do, too. General
Business
The report does an excellent job of summarizing all the various
ways in which Y2K impacts businesses, both large and small.
However, as noted at the start, I take exception to the report's
statement in the summary that large businesses are generally doing
well with regards to Y2K. They can only be considered as doing so
when contrasting the percentage that are actually working on Y2K
vs. the percentages of small to medium enterprises (SMEs) that are
working (or even plan to work) on Y2K. Most business reports I've
examined--even those carefully scrubbed by lawyers and released in
10Q and 10K statements--show strong indications that the vast
majority of the Fortune 1000 were late in starting, are behind
where they should be, and don't fully understand all the work that
lies ahead of them.
As an example, Barron's Online on January 18, 1999, posted the Y2K
status as of 30 Sep 1998 (using 10-Q filings) for the 30
companies that make up the Dow Jones Industrial Average (Chevron,
GM, Coca-Cola, etc.). Of those 30, 27 of them--90%--said they
wouldn't be done any sooner than 30 June 1999, and 12 of
them--40%--gave completion dates of 31 December, 1999 some 15
months in advance of that date. These figures probably reflect the
Fortune 1000 as a whole and suggest that 30-40% of that group have
a planned or de facto completion date of 31 December. Experience
suggests that most won't make it. What is most significant through
the report, and is cited time and time again, is the number of firms
that refused to respond with information on their Y2K efforts even
when requested by a Senate committee under promise of confidentiality.
The report cites the Gartner Group's contention that 30% to 50% of
all companies worldwide will experience at least one mission
critical Y2K failure, and that time to repair it will last 3 days
(see p. 126). This and related statements have been cited as
evidence that critical unrepaired Y2K problems will probably be
mostly fixed within 72 hours, and almost all will be fixed within
the first week of January, 2000. I am uncomfortable with this
chain of assertions and the conclusions drawn from them, even
though I have in other forums been the one arguing that most
businesses get along just fine with buggy software right now.
Even granting the assertions, I'm not sure the conclusions follow;
I have seen Y2K integrated testing in a controlled environment
with remediated software drag on for weeks in an effort to chase
down subtle interacting problems that shouldn't even have still
been there. Y2K remediation post-Y2K will be, I believe, a far
more drawn-out and troublesome task than this section might
indicate.
Concerns
The section on various concerns (pp. 128-129) is excellent and
again paints a more serious picture of possible Y2K impact than
the executive summary or the coverage might lead you to believe,
particularly with regards to international trade.
Pharmaceuticals
This section doesn't mention, but Senators Bennett and Dodd did on
"The News Hours with Jim Lehrer" (2 March, 1999), that 80% of the
raw materials used for pharmaceutical manufacturing here in the
U.S. comes from overseas. Given the concerns raised in the
preceding section on international trade, this issue needs careful
consideration.
Food Industry
This is an issue that I take seriously, but which I have felt is
less a concern within the US than on a global basis. The report
again sobers me; it describes the committee's attempt to gather
information on the U.S. food industry and have witnesses appear
and notes that these efforts "met significant resistance...from
both industry trade organizations/associations as well as major
corporations within the retail and manufacturing sides of the food
industry." (p. 130) Not a good sign, and it makes me reassess my
estimate of the Y2K impact on the US domestic food chain.
It is hard to reconcile this portion of the report with the
attitude expressed publicly by Sen. Dodd against "stockpiling"
and what exactly he defines that to be (vs. the recommendations
from FEMA and the Red Cross). You might cast it in the old
verb-conjugation joke pattern: "I prepare, you stockpile, he or
she hoards."
Chemical Manufacturing
"The Committee is concerned that at this moment the impact of Y2K
on chemical process safety may be a neglected issue." (p. 133).
Enough said.
Litigation
This section only touches on the issue lightly, since the
committee is stil planning its hearings on this subject. However,
it is interesting to note that at the February 1999 meeting of
the Washington D.C. Year 2000 Group, which focused on legal and
liabilty issues, two of the lawyers presenting (Dan Hassett and
Greg Cirillo of Williams, Mullen, Christian & Dobbins) stated
their opinion that business-vs.-business Y2K litigation would be
relatively small compared to class action and shareholder
litigation vs. corporations, particularly with a focus on officer
and director liability.
International Preparedness
This again is an excellent collection of information on how the
rest of the world is dealing with Y2K that has only been available
in bits and pieces elsewhere.
The report raises the very real danger that transfer of wealth out
of other countries into the United States--in search of a 'safe
haven'could further exacerbate those countries' efforts to fix and
cope with Y2K issues and could even cause serious economic
collapse and government destabilization.
I have a very hard time accepting the Gartner Group's assertion
that only 10 percent of (mission critical?) Y2K failures overseas
will last more than 3 days (p. 145). Such an assertion appears to
presume that all such failures can be repaired simultaneously,
independently, and with no regards to resource loading, expertise,
replacement components, or other considerations. The report may
reflect an unfair or inexact summation of what Gartner actually
asserts, but it could stand clarification.
This report in its entirety is copyright (c) 1999 by Bruce F.
Webster
Formatted by Mike Maas on csy2k
J.L.T. |
