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F R e d e r a l o f e se r v e D B a nk a llas H E LE N E. HOLCOM B DALLAS, TEXAS F I R S T V I C E P R E S I D E N T AN D CH IE F O PERA TIN G OF FIC ER July 8 1998 75265-5906 Notice 98-55 TO: The Chief Operating Officer of each financial institution and others concerned in the Eleventh Federal Reserve District SUBJECT Federal Reserve System Century Date Change Project (Y2K Project) DETAILS To keep you informed about industry issues related to Year 2000 (Y2K) projects, we are enclosing a copy of the most recent Century Date Change News. This newsletter includes excerpts from interviews with a range of financial institution representatives, as well as articles on testing, contingency planning, and Year 2000 communications. We hope that you find the information helpful as you progress with your own Y2K project. In addition to this newsletter, the Federal Reserve will be distributing copies of Century Date Change Bulletin, No. 4 in July. An electronic copy is available on the Federal Reserve’s CDC Web site at <http://www.frbsf.org/fiservices/CDC/>. This bulletin contains critical information for any institution ready to test or preparing to test with the Federal Reserve. ENCLOSURE A copy of the Federal Reserve System’s Spring 1998 issue of Century Date Change News is enclosed. MORE INFORMATION For more information about the Federal Reserve’s CDC project, please contact Sarah Jennings via E-mail at sarah.jennings@dal.frb.org or by phone at 214-922-5259. For additional copies of this Bank’s notice, please contact the Public Affairs Department at 214-922-5254. Sincerely, 4UamJI^ For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank o f Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Taking Action for the Year 2000 s allfinancial institutions have movedfurther into theiryear 2000projects, one comment is heard over and over — “this is J L JL much bigger than I thought it would be. ” M aking a business readyfo r 2000 affects every part o f the organization and extends to all business partners, including large and small customers, utility compa nies, vendors, serviceproviders, and many other organizations and busi nesses. A t the Federal Reserve, no one can think o f any one project that has had a greater impact on the organization, its business functions, and its staff. / t A' I The Federal Reserve isfinishing its internal testing and is preparing to open its customer testingfacility onfune 29. While work on the applica tions that support our customers will be completed, we still have a sub stantial amount o f work remaining. Considerable resources willgo into supporting our testing with customers, preparing contingency plans, and finishing work on noncritical applications. M any institutions also are approaching a criticalpart oftheir project as they begin the testing phase. In this issue o f the “Century Date Change News, ” we are pleased to share portions o f eight interviews we com pleted with your colleaguesfrom throughout the country. You should see many commonalities in their comments with your own projects. And, perhapsyou mayfin d afew words o f wisdom that will helpyou asyou moveyour institution forward in your readiness efforts. We also have included articles on testing, contingency planning, and communication. We hope that these articles will provide valuable infor mation asyou continue to “take actionfo r theyear 2000.” In this issue: * Taking Action for the Year 2000 * The Financial Industry Prepares for the Vear 200 0 * Testing Vear 200 0 Changes * Contingency Planning - A Different Challenge for Year 20 0 0 Projects * The Next Step: Educating the Business Community About the Year 2000 ■ Communicating Year 2 0 0 0 Efforts * Small Business and the Year 200 0 Please route this information to: CENTURY DATE CHANGE The Financial Industry Prepares for the Year 2000 - - - - - - - - - - - - - - - - - - Withfewer than twoyears remaining until the century date change, financial institutions are immersed in preparationsfor theyear 2000. We interviewed eightfinancial institutions representing a cross section of the industry tofind out how theiryear 2000 efforts are pro gressing and to share the challenges they've encountered. The banks, savings and loans, and credit unions we interviewedgenerally are at the end of the assessmentphase oftheiryear 2000preparations and are starting to implement the tasks related to readiness —recoding software, testing systems, working with vendors and business partners to ensure theirpreparedness, andpurchasing new equipment. Most institutions say they started theiryear 2000 efforts later than they had hoped, but have made significant progress and plan to meet their compliance deadline by late 1998 or early 1999. These institutions plan to devote most o f1999 to testing and retesting to ensure they areprepared fully for the century date change. What stage of your year 2 000 preparedness plan are you working in (as of April 1998)? “ We are in the process of identifying alternative solutions should vendors be unable to become compliant.” Tamara Gurney, Chief Operating Officer of American Pacific State Bank in Sherman Oaks, CA, $ 345 million in assets: “O ur year 2000 committee was formed around May/June o f 1997, but we had been contemplating the issue in earlier decisions relating to PC network upgrades. We’ve identified all o f our vendors and prioritized those providing mission-critical applica tions to see if they’re compliant. We are in the process o f identifying alternative solu tions should vendors be unable to become compliant. As a service bureau client, we do no t have any reprogramming to complete, but we do have to follow up with vendors to make sure they are addressing the compliance issue.” Bob Wynne, Vice President, Corporate Public Relations for Bank of America in San Francisco, CA, $ 2 6 0 billion in assets: “O ur early work with the year 2000 actually started 30 years ago with our long-term mortgages. But we didn’t get down to serious work on the effort until 3-1/2 years ago when we started setting up our year 2000 project office. We’re on track, and our systems should be fully compliant by the end o f this year. We’re testing as we go along.” John Collins, Executive Vice President and Chief Financial Officer of Great Lakes Credit Union in Great Lakes, IL, $ 3 0 0 million in assets: “We started late last year, but it wasn’t until January o f this year that it really started to get exciting, and we’re progressing well. O ur major processing system vendor says its system is compliant, and 90 percent o f our operations run through this system. We’ll be testing with service bureaus/providers starting April and May. We hope to be done by late 1998, but realistically that may run through the first quarter o f 1999.” 2 CENTURY DATE CHANGE Gail Taylor, Vear 2000 Coordinator of Jefferson State Bank in San Antonio, IX, $292 million in assets: “We are in the validation and im p le m e n ta tio n p h ase. We haven’t had any major costs be cause everything tested OK. O nly one major piece o f equip m ent has needed to be replaced. We are planning to test with our service b u re a u s /p ro v id e rs . Some providers have offered to set up test environments where we could test on-site.” Jerry Fannon, First Vice President, Comptroller of Lincoln Savings Bank in Reinbeck, IA, $ 154 million in assets: “We started in the summer o f 1997. We’re still in the assessment phase, and we’re gathering costs. We’re satisfied with the progress we’ve made, and since we have finished year-end efforts, we have more time to devote to the year 2000 issue now. We expect to be compliant by the end o f this year. O ur year 2000 committee plans to prepare a statement o f compliance to present at the Board o f Directors meeting in December.” Robert Rivera, Manager, DP and MIS, of Lockheed Federal Credit Union in Burbank, CA, $1 billion in assets: “We started at the beginning o f 1997. We’re right where we expected to be - we haven’t had m any pitfalls or surprises, though this may change at any point. We’re halfway through coding. Service bureaus and providers have provided some test opportunities, and our main system provider will be available to test in two to three months. We’ll begin our testing phase around July and expect to be finished around October.” Pat Bramer, Senior Vice President of Metropolitan National Bank in Springfield, MO, $ 215 million in assets: “We’re nearing completion o f our assessment phase. We brought in a third party vendor to be involved in the technical areas. Further down the line, we will be testing with our providers. The provider o f our major application data processing system processes for 160 banks. They are considering having six to eight banks come in and test, and they’ll report the results to the other banks.” 3 CENTUR Y DA TE CHANGE What have been your greatest challenges in preparing for the year 2000? Bramer/Metropolitan National Bank: “The biggest challenge so far has been customer and staff awareness. We’ve found that it’s important to establish a system to ensure awareness through a constant flow o f information. As we enter the validation/testing phase, we’ll experience another chal lenge, which will be deciding how to validate testing. We’ll be dependent on technical staff to identify the adequacy o f our vendors. Given the size o f our institution, analyz ing this information will be difficult, and we must rely on a third party.” “ We’ve found that in SOme cases, our Vendors have turned the tables On US and seem more interested in finding out what w e’re doing instead of reporting to us what they’re doing ” Bill Mayton, Senior Vice President of First National Bank in Alamagordo, NM, $145 million in assets: “Testing mainframe software presents a challenge. How do we change the date on the mainframe and test without jeopardizing information? O ur third party vendor is doing an *n<^ePen^ ent: test’ ^ut we’re not sure that will satisfy the regulators. O ur other challenge is satisfying the regulators given the constantly changing environment. The Office o f the Comptroller o f the Currency admits requirements are changing rapidly an<^ that next week they may require something else. It’s not their fault - these require ments are coming down from Congress. But if, for example, a vendor is not at the stage where it should be, what can I do? I can change vendors. But what if they are all in the same phase?” Gurney/American Pacific State Bank: “Over the past 18 months, our Bank has undertaken a complete systems upgrade, in cluding local and wide area networks and core systems processing. So, the greatest chal lenge has been getting the time o f the individuals you need to focus on this project. During the awareness phase, you begin to see how overwhelming the year 2000 project is, and everyone still has his or her own full-time job to do. We’re considering hiring outside consultants to assist with this effort because everyone’s been working double time. Another challenge is testing and developing contingency plans for mission-critical systems. This effort is so costly in terms o f resources that we are hoping for some addi tional guidance from regulators before we do any unnecessary work.” Rivera/Lockheed Federal Credit Union: “O ur biggest challenge has been getting our nonsystem management to be aware o f the issue, involved, and helping us out. They have other concerns, and must turn away from their regular business to address the year 2000. Another challenge involves certifying vendor compliance. We’ve found that in some cases, our vendors have turned the tables on us and seem more interested in finding out what we’re doing instead o f reporting to us what they’re doing. Everyone is wary o f liability.” How would you judge your business partners’ readiness with their own projects? Collins/Great Lakes Credit Union: “Our business partners’ readiness varies widely. Some are really on top o f it, others are not, and some aren’t even ready to tell us if they’ll be ready. Safety and soundness are CENTURY DATE CHANGE fundamental issues. We are looking at all o f our systems, and if it is a criti cal system, we’ll replace it in 1998, or else we’ll pull the product and put in a competitor’s prod uct that is compliant. So I’m less concerned about us and more concerned about the endpoint pro cessors that are outside o f our building and out side o f our control. What will happen if they aren’t up to speed?” Taylor/Jefferson State Bank: “I have spoken directly to all o f our business partners, and 90 percent responded immediately when I requested a letter o f compliance or copies o f testing. Any that have shown hesitancy - I think it’s because they are afraid to say they are ready. Vendors know they need to be cautious.” Fannon/Lincoln Savings Bank: “We’ve been in regular contact with our business partners, and they all seem to have a plan. We are getting compliance letters from mission-critical vendors. Most o f our ven dors run PC-based programs, which they say are compliant, but you don’t know until you test.” Gurney/American Pacific State Bank: “O ur business partners are reporting mixed progress. Some are very progressive and are at the forefront leading the charge, while others are not very far along. My big concern is that we have a com m on deadline for compliance between the banking industry and our business partners. If they do n ’t need to show compliance until year-end 1998, I’m pushed up against a wall. We’ve told our mission-critical vendors that we need their compliance by October 1, 1998, or else we need to make a decision to go to another vendor.” Wynne/Bank of America: “O ur business partners appear to be well-informed and moving ahead to bring their systems up to speed. We wish they were further along, but the m om entum seems to be increasing. Three to four years ago, the year 2000 issue was probably too far off their radar screens.” 5 CENTURY DATE CHANGE How are your larger corporate customers doing with their projects? Mayton/First National Bank: — — “ We also are considering incorporating a year 2000 preparedness addendum into our loan agree ment to protect ourselves.” “O ur large corporate customers seem to be behind. I think in th e b e g in n in g ev ery o n e thought century date change was only data processing, hard ware and software-related. But gradually people are seeing that there’s as much liability on the corporat e side when they real ize how the Y2K problem af fects every aspect o f their busi ness. O ur loan area is gearing up and will be getting very ag gressive in the next 60 days. We’ll be visiting in person those corporate customers with loans in excess o f $100,000 to discuss their year 2000 preparedness.” Bramer/Metropolitan National Bank: “Two m onths ago, we sent a questionnaire to our commer cial loan customers identifying year 2000 concerns so we could analyze their preparedness. Our co m m ercial lo an o fficer is m o nitoring the adequacy o f these responses as they come in. We thought this questionnaire wouldn’t be received well, but that turned out not to be the case. These customers are responding well with a lot o f detail. They are taking the issue quite seriously and want to be in compliance. We also are considering incorporat ing a year 2000 preparedness addendum into our loan agreement to protect ourselves.” Taylor/Jefferson State Bank: “O ur senior loan committee put together a questionnaire for our commercial custom ers. There’s a tier o f customers who will automatically receive a questionnaire asking if they have a written plan, how they’ve evaluated their risk, what’s their completion date, are their computers/software compliant? Y2K compliance is a new aspect in lending, a new criteria that we are adding to our loan application. We are taking precautions to protect our bank and to protect our customers from themselves, especially those who think the problem will go away.” 6 CENTURY DATE CHANGE How have you been communicating your year 2000 efforts with your retail customers? Fannon/Lincoln Savings Bank: “We’ve been keeping our customers informed o f our progress since last fall in a bi m onthly newsletter. We plan regular articles up through the year 2000 to keep them aware o f what’s going on. W hen the news media picked up on the subject, they began putting out stories that were not true. I was watching one news program that advised viewers to contact their local bank, and if the bank was not planning to be compliant by December 31, 1998, they should switch to a national bank. Well, why is moving to a national bank going to help them? They are misinforming the public, and we need to counter that.” ----------------We Veprovided an Update on our nrOflreSS in our annual report, which is given out to all clients, and are exploring D U ttin Q q u j intormation on Our Internet web site ” Rivera/Lockheed Federal Credit Union: “We’ll probably have a flyer ready to mail with our next statement. We’re getting a num ber o f other instruments ready as well — through our fax line and Internet page. ^*Ur m essa§e n ot detailed, but we want to reassure our membership that there’s been a lot o f activity related to this area. We want them to know our management is aware o f the problem, and we’re doing what needs to be done.” Wynne/Bank of America: “So far, we’ve only been responding to those retail customers who ask about our compliance. O ur tellers have a standard response - that we are working on it and will be compliant by the end o f the year. If they want more information, they are directed to call me, and I have received only about 20 calls so far. We’ve talked about doing a mailer, but we wonder if that would alarm people. We do have a web site available to the public that has a lot o f information, and we have produced a white paper, “Turning 00, Is Your Company Ready for the Year 2000?” We will issue a press release when we are compliant. Right now, we just want to get the job done.” Bramer/Metropolitan National Bank: “We sent a memorandum to our staff assuring them that we recognize the issues in volved in year 2000 compliance, making sure they have started to think about it, and outlining concerns for our retail customers. We listed our year 2000 committee mem bers as contacts for more information. We have attended a Chamber o f Commerce meeting to share information about year 2000 efforts.” Gurney/American Pacific State Bank: “We haven’t done any broad communications yet. Our marketing staff is evaluating brochures to include in a mailing to clients providing general information on the issue. We’ve provided an update on our progress in our annual report, which is given out to all clients, and are exploring putting out information on our Internet web site. In the next few weeks, we’ll be considering a public relations and community information approach. There are a number o f possibilities, up to and including hosting seminars with experts in the field to educate our clients. Since this is not our area o f expertise, we want to be cautious in our approach with clients.” 7 CENTURY DATE CHANGE What advice do you have for other financial institutions dealing with century date change? Bramer/Metropolitan National Bank: “Year 2000 compliance is not just a technical issue - it’s an issue o f viability and surviv ability for our industry. In addition to having the stamp o f approval from your president, C EO , and Board o f Directors, you need to allocate resources to address the issue and communicate that you are doing so. The year 2000 committee must have the power to get things done; otherwise, the task is almost unworkable.” Mayton/First National Bank: “ There needs to be an awareness that century date 16986533 just affect computer system s, but other areas like security lights and door lock cod es.” “I recommend taking all the steps necessary to satisfy regulators. They take this issue very seriously, and have a zero tolerance level for those who are not complying. We value our relationship with the regulators, so we are doing everything exactly as they ask, which means working on this project every single day.” Collins/Great Lakes Credit Union: “Spend a lot o f time on assessment because identifying where the problems are is the difficult part, n ot the execution. W hen I first started working on the project, I didn’t think there was much to it. W hen I began following regulatory guidelines, I ended up putting together a two-year project plan that was 35 pages, and I saw I had a lot to do. You have to sit down and focus because it can sneak up on you real fast.” Taylor/Jefferson State Bank: “Time is critical. This project takes longer than you expect, even when everything is run ning smoothly. My advice is to consider worst case scenarios and have a contingency plan —for example, will my computer room stay cold, do I need a backup gas generator sitting in a truck outside the bank on the first day o f the year in case the power isn’t on, etc.” Fannon/Lincoln Savings Bank: “Start as early as you can, devote as much time as you can, and assemble a team dedicated to this effort. O ur Y2K committee contains representatives from all areas o f the bank, including trust, insurance sales, lending, computer, bookkeeping, and customer service. We assign specific responsibilities to each person.” Rivera/Lockheed Federal Credit Union: “It’s important to think outside o f computers, to areas you wouldn’t normally consider the facilities area, power companies, safe deposit time stamps. It’s also important to pri oritize correctly because management is concerned about many other business require ments in the course o f a year. Everyone needs to know o f the importance o f this project and how it affects every area.” Wynne/Bank of America: “Share information, both around your company as well as with the people you do busi ness with. You can get good ideas from other companies, and talking about the issue assures customers you have a plan and are dealing with it. There needs to be an awareness that century date change will not just affect computer systems, but other areas like secu rity lights and door lock codes.” 8 CENTURY DATE CHANGE Testing Year 2000 Changes Many institutions are at the point in their year 2000 projects where testing is looming right around the corner. Most industry estimates indicate that testing will take 50 to 60 percent o f the time, cost, and resources dedicated to this project. Prioritizing the appli cations you need to test, determining what you need to test within each application, and scheduling your testing will be very important. Clearly, this project is unusual because you need to test so many applications internally, work with vendors and service providers to ensure they are testing, and also test service provider interfaces. Prioritizing mission-critical applications and critical vendors or ser vice providers in your test planning process is critical because o f the enormity o f the task and the limited time and resources. In addition, you will need to factor in the applica tions or hardware that need to be tested in-house before you start third-party testing. To help you with this process, the FFIEC recently released an Interagency Statement, dated April 10, 1998, titled “Guidance Concerning Testing for Year 2000 Readiness.” This docum ent is available from the FFIEC web site at: http: www.FFIEC.gov/y2k/guidance.htm The Statement provides information on Testing Methodologies; Elements o f a Testing Plan; and Testing Internally Developed Systems, Testing with Service Providers, Soft ware Vendors, and O ther Third Parties (see the Statement for specific text o f milestones). FFIEC Key Milestones for Testing Phase — 6 /3 0 /9 8 Institutions should com plete the developm ent o f written testing strategies and plans. 9 /1 /9 8 Testing o f internal mission-critical systems should have started. 1 2/31/98 Testing o f internal mission-critical systems should be substan tially complete. Service providers should be ready to test with customers. 3 /3 1 /9 9 Testing with service providers should be substantially complete. Testing with other third parties should be underway. 6 /3 0 /9 9 Testing and implementation o f all mission-critical systems should be complete. Who should test? All institutions should plan to do some testing. Testing in-house applications, testing with vendor-provided hardware and software, and testing any data feeds with service providers are all part o f the year 2000 readiness process. You will also want to ensure that the building(s) you use will be ready (e.g., embedded chip systems, utilities, vault locks, etc.). By July 1, 1998, we, the Federal Reserve, will have completed our internal readiness testing o f all the critical software for services which our customers use. Since our FedLine 9 CENTURY DATE CHANGE and Bulkdata software often support mission-critical applications1, it is expected that each customer will conduct testing with the new FedLine2 or Bulkdata software once the customer has installed the CDC-ready version. Such testing should include integra tion testing with all interfacing front and back-end systems, testing o f Fedwire Funds Transfer and National Book-Entry Securities, and the customer’s other mission-critical applications, with the Federal Reserve’s C D C test environment. Federal Reserve’s Testing Plans The Federal Reserve plans to open our customer C D C test facility at the end o f June 1998. In anticipation o f the test facility availability, the Federal Reserve published Cen tury Date Change Bulletin #3, “ 1998 Customer Testing for Century Date Change” this past March. The Bulletin covers the 1998 C D C test opportunities, information on the FedLine software and Bulkdata, the Shared Testing Day schedule, and individual 1998 application schedules. The next Bulletin is due in May and will cover preparations for testing with the Federal Reserve. Two other Bulletins are scheduled for 1998, includ ing an issue devoted to the shared testing preparation and an issue detailing the 1999 customer test schedule. If your institution accesses services electronically from the Federal Reserve, you will want to review these Bulletins. Please contact your Business Development representa tive at your local Federal Reserve office to obtain a copy. All Federal Reserve Century Date Change publications also are available on the Internet at: http://www.frbsf.org/fiservices/cdc/bulletins.html Contingency Planning - A Different Challenge for Year 2000 Projects As each day passes, the need for year 2000 contingency plans becomes greater. C ontin gency planning for the century date change is much more far-reaching than planning for the more “traditional” types o f contingencies such as snow storms, computer out ages, earthquakes, and the like. Generally, contingency planning for the century date change has five components. First Although we are all working very hard to ready our automated systems to handle date processing accurately for the century transition and beyond, the reality is that we just might not make it in time for our entire inventory. Therefore, we should be asking, “W hat if we can’t get system ABC ready in time? W hat is our alternate plan for this system?” Types o f alternate plans which should be considered depend on the type o f system, its criticality to your organization’s mission, and the cost o f implementing the alternative. For example, if you are developing a new system that supports a missioncritical business, your project schedule has slipped, and the new application cannot be completed with sufficient time to provide thorough testing for all functionalities, you need to consider the alternative o f renovating your existing system. 1 The FFIE C Interagency Statement on testing (see “Guidance Concerning Testingfo r Year 2000 Readiness, ” released on A pril 10, 1998) defines a missioncritical application as one that is “vital to the successful continuance o f a core business activity. A n application may also be mission-critical i f it inteifaces with a designated mission-critical system. Products o f software vendors may also be mission-critical. ” 2 “FedLine” is a registered trademark o f the Federal Reserve Banks. 10 CENTURY DATE CHANGE Second Even if your organization’s year 2000 initiatives are right on schedule and all your systems are year 2000 ready and tested, there is always the possi bility o f an unexpected p roblem within your systems or within the systems o f those with whom you ex change data or on which you depend for your physical infrastructure. These types o f problems need to be antici pated and plans developed to miti gate the business disruption risks that they may cause. This type o f contin gency planning is similar to planning for com puter or facilities outages — often known as disaster recovery or business resumption plans. For the century date change, however, you will need to review your existing plans for their ability to deal with the uniqueness o f the possible types o f failures and associated recovery plans. For example, if you usually depend upon backup software to support your mission-critical applications, and you experience a problem within your software, it is likely that your backup software will either contain the same problem or will be a previous non-compliant version. Third “ Not only do we need to plan for contingencies directly affecting our system s, but also for contin gencies experi enced by our customers and major suppliers.” One o f the most significant risks associated with the century date change is the vast num ber o f possible points o f failure both within and outside the organization. N ot only do we need to plan for contingencies directly affecting our systems, but also for contin gencies experienced by our customers and major suppliers. W hat happens to our orga nization if a major segment o f our business cannot operate after the century rollover, for even a small am ount o f time? Do we know which o f our customers and suppliers would most affect our business survival? Are there any measures we can take to assist them? This area o f century date change contingency planning is perhaps the most challenging. Fourth Another type o f century date change contingency planning is developing processes to manage the century rollover weekend. These processes involve designing proactive mea sures to minimize the effect o f possible adverse events during the New Year’s weekend. Some o f the areas for which preventative plans can be created include data and resource availability. Are there files that you may want to retain from late 1999 just in case your data are unavailable or are corrupted by either internal or external problems? What about planning to have an adequate level o f staff on hand to verify your initial results 11 CENTURY DATE CHANGE and to respond to problems? Staff who need to be on-site or on call need to be in formed well in advance o f December 1999; vacation policies during the latter part o f 1999 should be established and communicated now. Those employees needed for work over the special weekend should be notified, with perhaps special incentives offered to compensate for having to postpone the New Year’s celebrations o f the century. Fifth “ There is truth in the principle of ‘the best defense is a good offense.’ ” Perhaps one o f the most important plans that transcends all types o f contingency prepa rations is the establishment o f century date change com munication procedures. It is not too early to set this critical process in place. These procedures should include clearly defining responsibilities as well as assigning specific individuals to these tasks. This chain o f communication must provide for the expedient flow o f information from technical and operational staff to the business owners and ultimately to the senior managers chosen to make critical and timely policy decisions. D on’t forget to include your public relation experts who may be on the front line with your customers, the media, or your stakeholders. The importance o f thorough contingency planning and preparedness cannot be overes timated. Planning involves making some hard decisions about allocating resources, in cluding tradeoffs and even funding, that need to be addressed now. Those organizations that begin this planning early (and now is not too early) will go a long way toward prom oting their year 2000 readiness and their business viability over the century date change. There is truth in the principle o f “the best defense is a good offense.” The Next Step: Educating the Business Community About the Year 2000 Your internal systems have been updated and are well on their way to being year 2000 ready. You have been working with your customers and business partners to ensure their systems will be able to handle the century date change. Have you done all you can do for the year 2000 effort? The answer is no. You can help educate the business com m u nity by becoming an advocate o f year 2000 preparedness. While the financial services industry generally has been proactive in addressing year 2000 compliance, other industries have not. Several surveys conducted in late 1997 found an alarming lack o f preparation for and awareness o f year 2000 compliance. For example, a poll o f Fortune 500 companies representing 14 industries found that only 24 percent had a detailed year 2000 strategy, and only one in six had started to implement a strategy.3Another survey queried 17 hardware and software companies about the retail companies they serve. This survey found that 87 percent o f mid-sized retailers (annual sales between $300 million and $2 billion) were using software that was not year 2000 compliant for their merchandising systems, warehouse management systems, POS sys tems, financial and accounting systems, and time-and-attendance systems.4 These statis tics indicate that much o f corporate America is moving too slowly to meet the year 2000 deadline. 3 Cassidy, W.B. “Can’t stop the clock." Traffic World, November 10, 1997, p38. 4 “N R F study: Stores lag on year 2K compliance.” Chain Store Age, November, 1997, p87. 12 CENTURY DATE CHANGE The financial services industry can take a leadership role in educating the business com munity for the year 2000. Having any business or segment o f your com m unity falter as a result o f non-compliance can have a negative impact on your institution. And, by leading the charge for year 2000 preparedness, you are prom oting confidence through out your community that your institution is ready for the century date change. “ Emphasize that century date change is not merely a com puter problem, but a business problem, and being unprepared can affect the bottom line.” The Medium How best to spread the word about year 2000 compliance to the business community? Your institution can designate speakers knowledgeable about century date change issues. The Cham ber o f Commerce and Rotary Club are two excellent forums for reaching the business community. Ask your staff if they belong to any other business organizations that may offer an opportunity to present year 2000 information. Another vehicle for reaching the business com m unity is through print media. Develop articles for the local press, especially business publications. W hat is your local government doing to fix its systems and promote year 2000 readi ness? If, like m any industries, your local government is lagging behind in its year 2000 efforts, offer to work with local agencies to ensure that police and fire services, water, electricity, and other utilities are not interrupted. Encourage any efforts o f local govern ment to launch a year 2000 awareness campaign. You can offer to partner with local government to disseminate the year 2000 readiness message. The Message Whatever communications vehicle you choose, your message should stress the immedi ate need for each and every organization to address year 2000 readiness —even if their efforts consist solely o f contacting their vendors to ensure they will be compliant. Many businesses, especially small ones, may be unaware o f the broad ramifications o f the century date change, and that anything from their telephones to their building’s eleva tors may be unable to function. Discuss how your institution developed its strategy, timeline, and budget for year 2000 readiness. Emphasize that century date change is not merely a computer problem, but a business problem, and being unprepared can affect the bottom line. Because we are part o f a larger business community, our strategy for century date change requires more than internal awareness and readiness. Educating customers, business partners, and the business com m unity will help ensure a sm ooth transition to the millennium. Communicating Year 2000 Efforts Preparation for century date change has many components, including assessing and testing computer systems and working with business partners to ensure their readiness. While concentrating on these tasks, it’s easy to overlook another important strategic aspect o f year 2000 preparation: communication. 13 CENTURY DATE CHANGE Your institution’s effort to become year 2000 ready is valuable information that should be conveyed to the outside world. In addition to enhancing your in stitu tio n ’s reputation, communicating your year 2000 experiences is a public service - it raises com m unity awareness o f the importance o f preparing for century date change. The fi nancial services industry has a responsibility to lead preparedness efforts, especially for the business community. (See related article in this issue, “The Next Step: Educating the Business Com m unity A bout the Year 2000.”) How to Approach Vear 2 000 Communications Ideally, there should be a communications com ponent to every aspect o f your year 2000 efforts. However, even if your focus to date has solely been on technology issues, it is certainly n o t too late to formulate a communications plan. Here are some guidelines for setting up a year 2000 communications effort. 1. Select your communications team. “ Your heaviest communication effort is probably ahead, so you may want to develop a plan that addresses the next 18 months.” Create a multi-functional team o f individuals charged with developing and disseminat ing your year 2000 messages. The team should include marketing communications staff, public relations staff, and representatives from your year 2000 team. Because com m uni cation efforts are most successful when there is support from senior management, your communications team should include a senior executive, preferably someone who has experience with marketing, communications, or media relations. Be sure to clarify the roles and responsibilities o f each team member. Also, be sure to invite this team —espe cially communications professionals —to your year 2000 strategy sessions. 2. Define your target audiences. Your customer may be your primary audience for communicating positive year 2000 messages, but there are other crucial secondary audiences. Besides your customers, your external audiences may include government regulators, shareholders, vendors, and the media. D on’t forget your internal audiences —your employees and various subsets o f employees (those who interact with your customers and those assigned to your year 2000 project). These individuals also need the security o f knowing your institution has the year 2000 situation under control and won’t be adversely affected by the century date change. 3. Develop your strategic communications plan. Develop the key issues that need to be addressed and decide when it is best to com m u nicate them. For example, you may want to communicate when you have completed each segment o f your year 2000 strategy: planning, assessment, coding, testing, and imple mentation. Your heaviest com munication effort is probably ahead, so you may want to develop a plan that addresses the next 18 months. These communications will convey that the first business day o f 2000 will be “business as usual” for your institution. Tailor the frequency o f your communication to your audience. You may decide that your internal audiences should be kept informed o f year 2000 efforts on a frequent basis, while your external audiences will receive announcements only when major milestones have been met. You also will need to tailor the communications medium to the target audience — press releases to the media, a newsletter for employees, a newsletter and CENTURY DATE CHANGE advertising campaign targeted to customers and other secondary audiences, and presenta tions to the business com m unity are some examples. Even if all o f your systems have been successfully tested, and your institution is confident about being fully year 2000 compliant, it is prudent to formulate a crisis communications plan as part o f your contingency planning efforts. Approaching a worst-case scenario with preparedness will go a long way toward calming your customers and other audiences. 4. Implement your communications plan. Once you’ve put time and effort into organizing your communications strategy, imple menting it should be the easy part. Be sure your communications team continues to meet periodically to discuss the plan and adjust it when necessary. Stay poised to take advan tage o f external circumstances whenever possible, such as co-sponsoring a year 2000 aware ness campaign with your local government or contributing to a newspaper article series on year 2000 issues. Year 2000 compliance is an issue fraught with the possibility o f misinformation and ca pable o f causing a great deal o f concern. By being proactive in communicating your institution’s efforts, you will prom ote confidence in your organization and in the finan cial services industry for your customers and the general community. Small Business and the Year 2000 In our Fall 1997 “Century Date Change News,” we m entioned that a brochure for the small business vendor was underway and would be available in early 1998. That docu m ent is available on the Internet at: http://w ww .frbsf.org/fiservices/cdc/ This docum ent was designed for the Federal Reserve’s small business vendors. Because a num ber o f institutions have expressed interest in the brochure for their own vendors or customers who own small businesses, we decided to make it available to everyone. It is on the Internet in three formats, HTML, PDF, and PageMaker (a nonviewable file unless you have the program). If you would like to print copies for your own vendors or small business customers, please download the PageMaker file and the file instructions to a diskette. If you print the brochure, please do not delete the line on the back o f the bro chure that says, “This brochure was prepared by the Federal Reserve Bank o f San Fran cisco.” No changes should be made to the brochure without written consent from the Federal Reserve. If you have further questions, please contact Kathleen Aswell, National Marketing Consultant, at (415) 974-2877 or e-mail her at kathleen.m.aswell@sf.frb.org. Rather than print the document, many institutions are linking to the docum ent from their own Internet site. O ther institutions are sending out letters to their vendors and small businesses to let them know that the docum ent is available and the Internet address where the docum ent can be accessed. If you need additional information about the brochure, please contact Kathleen Aswell at the phone num ber or e-mail address listed above. 15 CENTURY DATE CHANGE Here are some references that may be o f interest to you and your colleagues. These articles are not inclusive nor does the Federal Reserve necessarily endorse all o f the ideas presented. In addition, please watch your local and national trade association periodicals for more information. Anthes, G.H. “ Contingency planning: When disaster strik es” Computerworld, January 19, 1998, p80. de Jager, P. “ Take the year 2 000 test!” Datamation, October 1996, p76. Estes, D. “ How much testing is enough?” Year/2000 Journal, January/February, 1998, p20. Malloy, i “ It’s tomorrow today.” Computerworld, January 19, 1998, p87. Polonsky, J.E. “ Thinking points for a full company response to the year/2000 software crisis.” Year/2000 Journal, March/April, 1998. lllrich, W.M. “ Year/2000 testing: Where the rubber m eets the road.” Year/2000 Journal, September/October 1997. Vijayan, J. “ Heed the warning! IS must test third-party Y2K fixes for compliance.” Computerworld, February 23, 1998. p i. The Century Date Change News is published by the Federal Reserve’s Century Date Change Project Office. Editors: Kathleen Aswell * Elaine Geller * Jeannine Rucker 16
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