Progress on Year 2000 Conversion

Report of the U.S. Office of Management and Budget

as of August 15, 1997

The Administration is working to avert the problems that could occur if systems are not able to correctly process the year 2000. On February 6, 1997, OMB sent a report to the Congress entitled "Getting Federal Computers Ready for 2000," which outlines the Federal government's strategy to address the year 2000 computer problem in its systems. That strategy is predicated on assuring agency accountability. To assist in that effort, OMB required agencies to report quarterly on their progress on the fifteenth of February, May, August, and November. (See OMB Memorandum M-97-13, "Computer Difficulties Due to the Year 2000 -- Progress Reports" - May 7, 1997). This report summarizes those plans and describes other actions being taken to asssure success.

The Federal government's strategy is based on the five phases of agency best practices for addressing the problem: Awareness, Assessment, Renovation, Validation, and Implementation ^1/. With advice from the CIO Council, OMB set government-wide milestones for the completion of work in each of the phases. Agencies then established plans for when they would complete the work in each phase. The quarterly reports which are summarized here are used to measure progress against those plans.

On June 23, OMB sent the Congress a summary of the first agency quarterly reports, and made it available to the public. This second summary report is based on the second agency progress reports which were due to OMB on August 15, 1997.

Government-wide Progress

Analysis

The February report established the schedule against which to measure progress and provided initial cost estimates. This report provides the second measure of progress and again updates cost estimates. It shows that:

many agencies have completed their assessment of the problem and are renovating code;

others have not made substantial progress;

agencies now estimate they will spend $3.8 billion fixing the problem;

the number of mission critical systems that agencies have identified has increased to 8,562 (excluding the Social Security Administration, which reported modules); and,

of those mission critical systems:

5,332 (62%) are being repaired,
1091 (13%) are being replaced,
390 (5%) are being retired, and
1646 (19%) are already year 2000 compliant.

This report includes four tables which array and summarize information provided by agencies.

Table 1, "Agency Progress and Plans for Year 2000 Compliance of Mission Critical Systems," provides the agencies' schedules for completing the five phases of the government-wide best practices. It shows that 20 of the 24 agencies were scheduled to have completed the assessment phase by August 15, 1997.

Table 2, "Agency Year 2000 Mission Critical Systems," provides a snapshot of the size of the year 2000 problem and the results of "repair, replace, or retire" decisions made thus far. Agencies have now identified 8,562 mission critical systems (excluding the Social Security Administration which has identified 29,139 modules), which is 913 more than the 7,649 identified in the May report.

Table 2 also shows that agencies are repairing the majority (62 percent) of their systems, replacing 13 percent, and retiring 5 percent. Nineteen (19) percent of agency mission critical systems are already Year 2000 compliant. In May agencies reported that they would repair 59 percent, replace 9 percent, and retire 5 percent of their mission critical systems, and that 21 percent were already compliant.

Table 3, "Status of Agency Year 2000 Mission Critical Systems Being Repaired," shows that, as a weighted percentage, the government is 56 percent complete with its assessment, and 12 percent complete with renovation of the mission critical systems to be repaired. These reductions in the percentages from the May report (65 percent and 17 percent respectively) are due to the agencies' identifying 839 more systems being repaired than were reported in May.

Table 4, "Agency Year 2000 Cost Estimates as of August 15, 1997," shows the estimated costs for fixing the problem by agency. Agencies now estimate it will cost $3.8 billion to fix the year 2000 problem, which is $1 billion higher that the $2.8 billion reported in May. That includes estimated expenditures of $850 million in FY 1997 and $1.7 billion in FY 1998.

The estimates cover the costs of identifying necessary changes, evaluating the cost effectiveness of making those changes (fix or scrap decisions), making changes, testing systems, and preparing contingencies for failure recovery. They do not include the costs of upgrades or replacements that would otherwise occur as part of the normal systems life cycle. They also do not include the Federal share of the costs for state information systems that support Federal programs. The figures provided by agencies continue to be preliminary estimates.

Evaluation

Based on the reports, some agencies are making good progress in addressing the year 2000 problem. Most are on schedule and have completed their assessment of the problem; many have also begun renovating systems. However, as the summary tables show, most of the work remains to be done. As of today, 75 percent of the 8,562 agency mission-critical systems identified must be repaired or replaced.

While progress has been made overall, it has not been uniform across the agencies. The reports are disappointing in several of the agencies and we will therefore increase our oversight of their activities. (See the agency evaluation discussion below.)

As expected, our estimate of the government-wide cost ($3.8 billion) is higher than the $2.8 billion estimate that we reported in May, because agencies are progressing through their assessments of the problem. The primary sources of the increase are the Treasury Department ($736 million), the Transportation Department ($173 million), and the Department of Defense ($92 million). We expect that the next quarterly report will provide a better cost estimate as agencies complete the assessment phase and gain more experience about how much it costs to renovate their systems.

Government wide Issues

Validation

As agencies move into renovating code, proper validation of changes made will be critical to success in fixing this problem. These two activities will happen sequentially for each system, but their schedules will overlap within an agency, because different systems will be at different stages of being fixed. Table 1 includes a schedule of when agencies will complete the renovation and validation of all of their mission critical systems. Over the coming months OMB will meet with those agencies with the latest scheduled completion of the validation phase and discuss the adequacy of those dates.

As part of those meetings, we will discuss the preparedness of communications interfaces with systems external to the Federal government, including State and local governments and the private sector. The CIO Council has established a working group to specifically look at ways to streamline the interfaces between the Federal government and State and local governments. Among that group's accomplishments are establishing points of contact for the States in each Federal agency, and work on a State-Federal summit, to be held in October, to discuss electronic data interfaces between the States and the Federal government.

Auditing

The year 2000 problem represents a threat to systems that are critical to the functioning of the government. Therefore, it is important to be sure that the problem has been or is being fixed. Auditors can provide an independent validation of progress in addressing this problem. Accordingly, OMB is revising its system audit guidelines to request that agency auditors report on Year 2000 progress from now through 2000.

Planning for Contingencies

Where a mission critical system is not fixed in time, it is essential that a contingency plan be in place. Agencies are to develop such plans in accordance with the government-wide best practices endorsed by the CIO Council. To assure that such planning has occurred for systems in danger of not being repaired on time, we have asked for a summary of the contingency plan for any mission critical system that is reported behind schedule in two consecutive quarterly reports. We will identify and summarize any such plans in future reports to the Congress.

Other Government-wide Systems

We have identified and are working on three government-wide areas where the year 2000 problem occurs in other than computer systems: telecommunications, bio-medical devices and laboratory equipment, and facilities. In these areas, the problem occurs in commercial products that have computers or computer chips inside. We have established inter-agency working groups, chaired by the key programmatic agency in each of these three areas, to raise awareness and to work with manufacturers to assure that products are fixed. Should other government-wide areas be identified, we will organize similar inter-agency efforts to address them.

Agency-Specific Progress

Agency Evaluation.

While most agencies appear to be making progress in addressing this problem, a number are not. Slippage in agency schedules is not an option. Therefore, we are identifying agencies in one of three categories depending on whether there is sufficient evidence they are making adequate progress in addressing this problem.

The following criteria helped form our evaluation of the information received from the agencies:

Status of the assessment of the problem
Measurable improvement from previous reports
Schedule for completion of the phases of best practices
Dramatic changes in previously reported information or other indications of concern

The first category is agencies where there is insufficient evidence of progress. The agencies in the first category are: Agriculture, Education, Transportation, AID.

The Department of Agriculture missed its completion date for the assessment of its problem and reports that it is only 38 percent complete with its assessment. Because of this lack of progress, the Secretary of Agriculture has imposed several stringent measures on the components of the Department, including a moratorium on the purchase of new information technology until the assessment is completed.

Of the Department of Education's 24 mission critical systems, 10 are already compliant, 6 are being replaced, 1 is being retired, and 7 are being repaired. The Department missed its completion date for the assessment of its systems to be repaired, and reported that 5 mission critical systems were already two months behind schedule. Of the 7 needing repair, 3 of the 4 systems directly relating to student financial aid delivery have been assessed or are undergoing assessment. The remaining student financial aid system needing repair, and 3 other systems, had not begun assessment as of the August report. The Department currently reports that it has begun all assessments and is taking action to assure that work on the systems is accelerated so that problems found will be corrected in time.

The Department of Transportation will not complete its assessment until December 1997. Based on the first part of the assessment, however, the Department has increased its estimate of the work required to fix the problem by 3-fold. In addition, the Department does not plan to complete its validation until December 1999. The Deputy Secretary has increased the executive level attention to this problem within the Department.

The Agency for International Development has not provided a schedule for its efforts. Based on its recently completed assessment of its corporate systems, however, it found that its newly implemented suite of systems contained year 2000 vulnerabilities. The Administrator will update its report in November.

For these agencies we are establishing a rebuttable presumption going into the FY 1999 budget formulation process this Fall that we will not fund requests for information technology investments unless they are directly related to fixing the year 2000 problem.

For agencies in the second category, we see evidence of progress, but also have concerns. Many have strong year 2000 programs which we expect will continue to show progress. The agencies in the second category are: Commerce, Defense, Energy, HHS, Interior, Justice, Treasury, EPA, FEMA, NASA, OPM, and SBA. A summary of concerns and progress for these agencies appears at Table 5.

For these agencies, we will discuss their year 2000 program with them during the Fall, but will forbear applying the rebuttable presumption concerning funding until we receive their November 15th quarterly report. We will, however, put them on notice that FY 1999 funding for information technology investments will be contingent on continued progress in addressing the Year 2000 problem.

The remaining agencies -- HUD, Labor, State, VA, GSA, NSF, NRC, and SSA -- appear to be making progress. For these agencies, our approach will be as follows:

Technology investments of these agencies will be treated in accordance with OMB's normal budgetary review criteria, which include a requirement that the investment "reflect the agency's year 2000 compliance plan. (See OMB Memorandum M-97-02, "Funding Information Systems Investments.").

All agency progress will be re-evaluated upon receipt of their November 15 reports.

Exception Report on Systems.

OMB requires agencies to report on any mission-critical systems for which year 2000 efforts have fallen more than two months behind schedule.

The Department of Energy reported that a number of its sites had not identified any mission critical systems, and that they were, therefore, behind schedule on the assessment phase. Senior management in the Department has taken action to assure that those sites identify their mission critical systems and assess whether they are year 2000 compliant. The Department reports that there will be some additions to their number of mission critical systems in future reports.

The Department of Education reported three systems that are behind schedule in completing their assessment, due to contractual problems. They also report that those contractual problems have been resolved and that the schedules have been adjusted for those systems to assure they will be year 2000 compliant in time.

Conclusion.

Overall progress continues, and agencies continue to place a high priority on fixing this problem. However, a number of potential problem areas are apparent, and OMB is taking action to assure that these areas receive the proper attention.

^1/ While there are five phases, the work in them overlaps. It is not necessary, for example, for the assessment of all systems to be completed before renovation of systems begins.

TABLE 1

Agency Progress and Plans for Year 2000 Compliance of Mission Critical Systems
(August 15, 1997)

Agency	Assessment	Renovation	Validation	Implementation
Government-wide Goal	6/97 ^1/	12/98	1/99	11/99
Agriculture	6/97	9/98	9/99	10/99
Commerce	3/97	12/98	1/99	10/99
Defense	12/97	12/98	6/99	11/99
Education	6/97	9/98	9/98	3/99
Energy	1/97	9/98	2/99	7/99
HHS	6/97	12/98	1/99	11/99
HUD	6/97	12/98	7/99	11/99
Interior	3/97	12/98	1/99	11/99
Justice	6/97	7/98	10/98	1/99
Labor	6/97	12/98	1/99	11/99
State	6/97	9/98	10/98	8/99
DOT	12/97	12/98	12/99	12/99
Treasury	7/97	12/98	12/98	11/99
VA	1/98	11/98	1/99	10/99 ^2/
AID	8/97	TBD	TBD	TBD
EPA	6/97	12/98	1/99	11/99
FEMA	6/97	12/98	1/99	11/99
GSA	6/97	12/98	1/99	10/99
NASA	3/97	6/99	7/99	12/99
NSF	6/97	12/98 ^3/	1/99 ^3/	11/99 ^2/
NRC	9/97	3/99	4/99	11/99
OPM	6/97	12/98	11/99	12/99
SBA	9/96	12/98	12/98	12/98
SSA	5/96	9/98 ^2/	12/98	1/99 ^2/

^1/ Two digits are used for the year since all dates occur before the year 2000

^2/ Date is earlier than reported in May 1997

^3/ Date is later than reported in May 1997

TABLE 2

Agency Year 2000 Mission Critical Systems
(August 15, 1997)

Agency	Total Number	Number Compliant	% of Total	Number Being Replaced	Number Being Repaired	Number Being Retired	Number Undecided
Agriculture	1,239	126	10%	37	932	144
Commerce	503	133	26%	118	158	3	91
Defense	3,695	652	18%	267	2,593	183
Education	24	10	42%	6	7	1
Energy	399	99	25%	170	122	8
HHS	434	115	26%	146	166	7
HUD	231	51	22%	45	108	27
Interior	89	19	21%	15	49	6
Justice	190	58	31%	11	118	3
Labor	60	9	15%	29	22	0
State	72	24	35%	36	12	0
DOT	430	0	0%	19	408	3
Treasury	320	39	12%	42	239	0
VA	11	1	9%	0	10	0
AID	64	20	31%	30	2	0	12
EPA	61	33	54%	7	21	0
FEMA	38	17	45%	3	17	1
GSA	58	29	50%	17	11	1
NASA	457	184	40%	46	225	2
NSF	16	0	0%	4	12	0
NRC	7	0	0%	3	4	0
OPM	124	17	14%	10	96	1
SBA	40	10	25%	30	0	0
SSA ^1/	29,139	23,456	80 %	975	21,884 ^2/	8
Total ^3/	8,562	1,646	19%	1,091	5,332	390	103

^1/ Reported and tracking modules (units of computer code that when compiled/assembled and executed perform a specific business function) rather than systems.

^2/ Includes 17,184 modules where renovations are completed

^3/ Excludes SSA which reported modules.

TABLE 3

Status of Agency Year 2000 Mission Critical Systems Being Repaired
(August 15, 1997)

Agency	Number of Systems	Assessment % Complete	Renovation % Complete	Validation % Complete	Implementation % Complete
Agriculture	932	37%	8%	4%	4%
Commerce	158	80%	15%	6%	5%
Defense	2,593	43% ^1/	14%	5%	0%
Education	7	30%	0%	0%	0%
Energy	122	80%	10%	10%	5%
HHS	166	100%	28%	10%	10%
HUD	108	100%	9%	2%	1%
Interior	49	100%	43%	0%	0%
Justice	118	100%	1%	1%	0%
Labor	22	100%	15%	11%	7%
State	12	100%	25%	0%	0%
DOT	408	66%	0%	0%	0%
Treasury	239	77%	6%	5%	5%
VA	10	85%	51%	28%	13%
AID	2	80%	0%	0%	0%
EPA	21	80%	33%	28%	28%
FEMA	17	88%	35%	35%	24%
GSA	11	100%	21%	14%	13%
NASA	225	96%	8%	7%	2%
NSF	12	100%	33%	25%	0%
NRC	4	100%	0%	0%	0%
OPM	96	100%	3%	0%	0%
SBA	0	100%	35%	35%	30%
SSA ^2/	21,884	100%	78%	67%	62%
Total ^3/	5,332	56%	12%	5%	2%

^1/ Of Defense's 3,695 total mission critical systems, 60% have completed assessment

^2/ Reported and tracking modules rather than systems.

^3/ Excludes SSA which reported modules; percentages are weighted averages.

TABLE 4

AGENCY YEAR 2000 COST ESTIMATES AS OF AUGUST 15, 1997
(Dollars in Millions, by Fiscal Year)

Agency	1996	1997	1998	1999	2000	TOTAL

Agriculture *	5.0	24.6	49.6	25.3	9.0	113.5
Commerce *	2.6	11.5	28.0	25.8	6.6	74.5
Defense * ^1/	10.6	389.2	659.8	281.1	7.1	1409.5
Education	0.1	0.6	3.4	4.4	0.2	8.7
Energy	1.8	30.6	54.5	53.2	20.4	160.5
HHS	9.2	25.0	42.9	20.1	0.0	97.2
HUD **	0.7	7.6	35.0	15.0	6.2	64.5
Interior **	0.2	2.7	5.3	3.9	1.6	13.7
Justice *	1.5	8.0	11.5	3.1	0.3	24.4
Labor *	1.7	5.3	6.9	3.4	1.1	18.4
State	0.5	47.6	56.4	29.1	1.6	135.2
Transportation *	0.6	18.7	107.9	107.4	30.1	264.7
Treasury *	1.3	192.5	518.0	265.0	128.9	1105.7
VA *	4.0	53.0	58.0	47.0	0.0	162.0
AID	0.0	0.2	0.5	0.3	0.0	1.0
EPA	0.8	3.3	6.8	5.6	2.3	18.8
FEMA	3.8	4.4	3.0	3.2	1.2	15.6
GSA	0.2	1.0	1.0	0.1	0.0	2.3
NASA **	0.1	8.5	20.5	12.1	2.2	43.4
NSF	0.0	0.5	0.8	0.1	0.0	1.4
NRC	0.0	2.6	2.9	2.9	0.9	9.3
OPM	1.7	2.1	0.3	0.3	0.3	4.7
SBA	1.7	3.3	2.0	0.0	0.0	7.0
SSA	2.2	15.4	9.5	6.0	0.1	33.2

TOTAL	50.4	858.1	1684.5	914.3	220.2	3789.2

Notes:

These estimates do not include the Federal share of the costs for State information systems that support Federal programs. For example, the Agriculture total does not include the potential 50 percent in Federal matching funds provided to States by Food and Consumer Services to correct their Year 2000 problems. Similarly, the HHS total does not include the Medicaid baseline costs for the Federal share of state systems. And, while Labor's FY 1998 appropriation request includes $200 million for States to correct Year 2000 problems in State unemployment insurance systems, that amount is not included in this estimate.

*Agencies for which total estimate increased by more than $1 million from the May report.

** Agencies for which total estimate decreased by more than $1 million from the May report.

^1/ Defense total estimate includes 61.7 million that was not allocated by year.

TABLE 5

Concerns and Progress for Second Category Agencies
(August 15, 1997)

Agency	Principal Concerns	Evidence of Progress
Commerce	Missed its assessment completion date	Progress in assessment and renovation of mission critical systems
Defense	Large number and variety of systems and interfaces. Substantial number still being assessed	Department remains on its schedule, Y2K is a top information technology priority
Energy	Missed its assessment completion date	Progress in renovating mission critical systems
HHS	Omitted several key systems in its first two reports	Progress in renovating mission critical systems
Interior	Little progress in validating systems, dramatic change in reported information	Assessment complete
Justice	Little progress in renovating and validating systems, concern about schedule	Assessment complete
Treasury	Missed assessment completion date, had dramatic changes in reported information	Substantially restructured program to assure accountability across the Department
EPA	No progress in the assessment of its mission critical systems	Progress in renovating and validating systems
FEMA	Has not completed assessment of mission critical systems	Progress in renovating and validating systems
NASA	Completion dates are later than the government wide goals	Progress on all phases of repairing a large number of complex mission critical systems
OPM	Completion dates are later than the government-wide goals	Found and assessed new mission critical systems, began renovation
SBA	Roughly 1/3 of production lines of code remain to be reviewed	Migrating its systems to a client-server environment by the end of 1998 and concurrently fixing its year 2000 problem