Y2k Italian Government Committee

The Y2k Problem: • Assessment of country readiness and of market consequences

• The Y2k and the Infrastructure-based Society in Italy

(from a Presentation of Prof. Augusto Leggio at the FOREX ConferrenceJuly 3rd, Milan)

2

The Framework: Fundamental Trends

• Political - Decentralization and Autonomy in Decision Making

• Economic - Globalization, Single European Currency

• Technological –Electronic Commerce, Electronic Money, Convergence of Information Technology, Telecommunications and Media; Y2K

• Social – Decrease of the Welfare state, Redefinition of Labor Markets on the Global Scale

• Financial – Liberalization of Capital Flow

• Industrial - Public Services Privatization

3

Y2k - Economy-wide Impacts (OECD 1998)

• Short-term inflationary pressures in countries close to their peak in the economic cycle due to demand for new investment, supply-side disruptions, and significant wage-increases

• Negative reactions from financial markets as the level of Y2k-related risk of firms and countries becomes more apparent

• Possible declines in productivity growth

• Transitory drop in output due to a significant number of failures in critical information systems throughout

the economy

4

European Union Y2k Resolutions:Commission (February 25th, 1999)Council (April 14th, 1999)Parliament (June 1st, 1999)

• Complete remediation process

• Accelerate preparations in public administrations

• Develop contingency plans to ensure the business continuity of vital public sectors operations, and ensure that similar plans are established for infrastructures (energy, water, telecommunications, transportation and finance)

• Encourage cooperation in the areas of information provision to and protection of consumers, within and between private and public sectors

• Disclose information about Y2k readiness of products, services and organizations

• Manage public confidence

• Avoid litigation

5

Business Risks(Gartner Group November 1998)

• Products (Made compliant & tested, modified warranties?)

• Investors (Will investors be impacted by failures, delays & perceptions?)

• Customers & Partners (Will largest customer base & partners have business interruption problems?)

• Supply Chain (Will all mission-critical products & services be compliant in time?)

• Internal Solutions ( All found, fixed, defects removed?)

• Vendor Solutions (Defects removed, will be delivered as promised?)

• PC & LAN (All found & assessed, any mission-critical, training done?)

• Embedded Systems (Non compliant all found & replaced?)

• Public (Negative disclosure effects or negative perceptions fixed?)

6

Business Risks

• Direct Correlation between Business Risk and:

• level of ICT investments• internal and external integration of processes

• Inverse correlation between Business Risk and:

• strategic vision• ability to progamming, to control, to manage Technology• availability of Human and Financial Resources

7

Y2k Time- based Risk

(Gartner Group - November 1998)

•Largest Companies

•Insurance

•Investment Services

•Banking

•Largest Companies

•Insurance

•Investment Services

•Banking

IV 40

IV 50

IV 60

III 25

III 20

II 15

I 3

0 0

•Small Companies

•Many Developing Countries

•Middle East ( except Israel )

•Small Companies

•Many Developing Countries

•Middle East ( except Israel )

•Healthcare

•Oil /Natural Gas

•Education

•Some Mid Companies

•Chemical

•Transportation

•Healthcare

•Oil /Natural Gas

•Education

•Some Mid Companies

•Chemical

•Transportation

Russia, China, India, Thailand, Philippines, Middle East,,

Argentina, Venezuela, Food Processing, Government Services, Agricolture

1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3Probability of a Mission-Critical System Failure a -

Average Time to Level IV is 30 months

Level

% Complete

Level 0: No started activity

Level 1: Preliminary activity, Awareness

Level 2: Problem Determination, Inventory, Process Analysis,Inter/extra dependencies

Level 3: Plan Complete, Business Priority, Human and Financial Resources Committed

Level 4: Operational Sustainability

Level 5: Fully Y2k Compliant

8

Predictions

(Gartner Group - November 1998)

Pre1998 1998 1999 2000 2001 2002 2003

October 1998

0 = 25% III = 25%

I = 15% IV = 15%

II = 15% V = 5 %

January 2000

0 = 20% III = 15%

I = 5% IV = 30%

II = 10% V = 20 %

Fiscal year system failures bgin to occur & testing begins 11% of vendors default on compliance of their products

•30-50% experience a mission -critical failure

•10% experience system failures within 12 months after millennium

11% of commercial software coninues to be non compliant Exact impact on the world economy is not possible to predict , however

year 2000 will likely be one of numerous contributors to a negative impact

over 3 - years

7/1999 - 3/2000

1/1999 - 12/1999

7/1999 - 3/2000

Embedded Systems Spike

7/1999 - 3/2000

Mission Critical

Compliance

Only a Portion of IT System Failures

will occur at the Millennium Rollover

WorldwideSystem Failures

9

The Infrastructure-based Society: Energy

• Trends– Strong Growth in Consumption

– Privatization, Fragmentation of the Productive Process

– Entry into the Telecommunications Market

• Critical Issues– Huge Differences in per capita Consumption between

Countries

– Nuclear Energy Pollution

– Social and Political Implications

– Risks of network instability

10

Y2k Impact on Energy Infrastructure

• Impacted sectors:– Production (in EU: nuclear 34%, thermal 43%, hydro 23%)

– Transmission and Distribution

– Power marketing and Trading

– Plants and Generation Dispatch

– Metering

– Customer Service

– Billing

• Y2k in Italy:– ENEL: inventory, impact analysis, remediation, encapsulation, mission

critical systems ready, control of supply chain, contingency plan (november 1999)

– Local distributors of electricity and gas (~ 1.000): Recommendation of Energy and Gas Authority (july 1999)

– ENI: assessment, update, test, contingency (august 1999)

– SNAM: ready, contingency plan (june 1999)

11

The infrastructure-based Society: Water

• Trends

•Privatization•Increase of utilization by families and industries

• Critical Issues

• Not sufficient production• Increase of cost• Risks of pollution

12

Y2k Impact on Water Infrastructure

• Water Supply•Source of supply•Transmission•Treatment•Distribution•Maintenance•Operations

•Waste water•Collection•Treatment•Holding capacity•Maintenance•Operations

•Y2k Impact in Italy•Almost the same as energy & gas (same local companies)

13

The Infrastructure-based Society: Telecommunications

• Trends

– Liberalization, Privatization, Mobile

– Concentration, Mergers and Acquisitions

– Convergence of IT, TV, Telecom (Telephony and Data)

– Massive Development of Internet

– Very high Demand

• Critical Issues

– Tariffs and Billing in Interconnected Neworks

– Complexity

– Domino effect of software errors in the network

14

Y2k Impact on Telecommunications Infrastructure

• Impacted sectors:

• Trunk/junction, local loop, customers data-bases• Network control• Local loop installation & maintenance (line testing & repair)• Switching • Transmission• Basic telephony and data transmission• Value added services• Front-office support• Billing

• Y2k in Italy

• Telecom Italia: ready & contingency plan (september 1999)• Mobile companies: ready & contingency plans (june 1999)

15

The Infrastructure-based Society: Postal Authorities

• Trends

– Deregulation

– Slow Liberalization and Privatization

– ICT alternatives in the most profitable business area

– Better Offer by the private sector

– Mergers and Acquisitions between public and private organizations

• Critical Issues– Market Erosion

– More Demanding Customers

– Universal service

– Labor tensions

– Social implications

16

Y2k Impact on Postal Authorities Infrastructure

• Impacted sectors:

– Automated switching of letters & parcels

– Counters

– Telex

– Telegraph

– Hybrid mail (Postel)

– Financial Services (money orders & savings)

• Y2k in Italy:

– Poste Italiane: ready & contingency plan (october 1999)

– Postel (national hybrid mail): ready & contingency plan (june 1999)

17

The Infrastructure-based Society: Transportation

• Trends

– Liberalization (complex)

– High Demand

– Intermodal Transportation and intensive Use of Information Technology

• Critical Issues

– Incompatible Infrastructures

– Congestion, Environmental and acoustical Pollution

– High Investments

– Red Balance Sheets at local level

18

Y2k Impact on Transportation Infrastructure

• Impacted sectors:

• air (airlines, ATC service, providers, airports, regulators)• maritime (seaports, ships)• railways• awareness varies widely• programs vary widely

•Y2k in Italy:

• air (Alitalia, ENAC, ENAV, main airports): ready, contingency plan• maritime: supply chain of seaports: almost ready• railways (FS): process analysis, contingency plan• highways and roads: process analysis, contingency plan • in general: two - layer industry

19

The Infrastructure-based Society: Banks and Finance

• Events– Creation of the Economic and Monetary Union

– New and more open Banking Regulatory Environment

– High Technological Innovation

• Trends– Privatization, Concentration, Mergers and Acquisitions

– Strong Growth of Private Pension Plans

– Business Process Reenginering, New Product and Service Offerings

• Critical Issues– High cost of labor

– Instability due to globalization

– High level of interdependencies

20

Y2k Impact on Banks and Finance Infrastructure

• Impacted sectors:

• Banks (System functions, Counters, Payments system)• Insurance companies (difficulty to provide continued insurance cover)• Markets (instability)• Domino effect

• Y2k in Italy:

• Integration test among main operators (made in june 1999)• High level of Readiness of the highest percentage of operators• Strong effort of regulators (Banca d’Italia, ABI, CONSOB, ISVAP)

21

Conclusions

Italian Y2k Committee Guidelines & Recommendations:

• Be aware at the maximum administration/company level• Control the Supply chain• Control the Cash flow• Provide the human and financial resources• Make internal and external Integration tests• Set up a Contingency plan• Set up a stable Group for Contingency plan• Cooperate with Unions and Consumer Associations• Give support to customers • Avoid litigation• Transform Y2k from a cost & a risk to a chance for development