NCPA - National Center for Policy Analysis

Companies Underestimated Y2K Challenge

December 8, 1998

Many large U.S. firms are having to increase spending to solve the Y2K computer bug problem by tens or even hundreds of millions of dollars. And the increased spending will do nothing to boost productivity.

  • The Securities and Exchange Commission figures companies now plan to spend, on average, about 26 percent more than they estimated just a few months ago.
  • The Gartner Group Inc. consulting firm warns that total Y2K costs could hit $1 trillion worldwide -- $600 billion before 2000 and $400 billion after.
  • The Federal Reserve Bank of Philadelphia predicts that Y2K spending could boost 1999's gross domestic product by 0.1 percent or $8 billion -- but it could shrink 2000 GDP by 0.3 percent.
  • Companies which have already solved their problems are worried that their suppliers and others they do business with could create horrendous problems for them if they don't have their own systems in order.

For example, General Motors Corp. does business with 40,000 suppliers. Even if a few of them are not up to speed, production lines all up and down the system could be disrupted for lack of parts. "If your don't get suppliers in line, it can be just as bad as not having your internal systems ready," a spokesman says.

Source: Marcia Stepanek, "Y2K Is Worse Than Anyone Thought," Business Week, December 14, 1998.


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