The real Y2K bug
An epidemic of failure to manage risk

The anticipated Y2K bug

As the year 2000 approached, there were fears that planes would fall from the sky and that supermarket shelves would be empty.  Banks would lose our money and electricity supplies would fail.  All of this would happen shortly after midnight as 1999 ticked over to 2000.

The idea was that computers using legacy programs, written in COBOL, which used only two digits to represent the year in dates, would not be able to handle the next step in the sequence ..97,98,99 as meaning that the year had clicked over from 1999 to 2000.  Computer systems could interpret 00 as 1900 rather than 2000.

Two digits were used rather than four because in the early days of computers, memory was very expensive.  Every attempt was made to reduce the memory needed to operate software.  It was well known that there could be a problem in the year 2000, but no-one cared about this in the 1960ís, 70ís, and 80ís.  Perhaps it was assumed that the software would be re-written before 2000 and many people no doubt assumed it would be someone elseís problem by then.

In the event, there were few problems when 2000 arrived.  In many cases, software had been checked or re-written but even where it hadnít, worst fears did not eventuate.

So people who stocked their pantries with food, water, batteries, and candles were oversupplied and people who had slunk off to live in caves had to resume their normal lives.

The real Y2K bug

But there was an unanticipated Y2K bug lurking!  At best it could be described as an epidemic of failure to manage risk.  At worst, it has been an outbreak of financial and moral bankruptcy.

Consider these major events:

  • the speculative dotcom bubble and bust (or the tech wreck), with the NASDAQ peaking at over 5,000 in March 2000 and then collapsing.

  • the tragic terrorist attacks of September 11 2001.

  • The invasion of Afghanistan in October 2001, with no sign of an end to the occupation.

  • The invasion of Iraq in March 2003, with no sign of an end to the occupation.

  • The devastation of New Orleans by Hurricane Katrina in August 2005.

  • The global financial crisis of 2008 and 2009, which appears far from over as at July 2010, as sovereign debt threatens many advanced economies.

  • The explosion of the Deepwater Horizon oil rig on 20 April 2010, which has resulted in histories worst oil spill, devastating the coastlines of several US states, and which has still not been plugged as at July 2010.

These all bear the hallmarks of bad risk management.  Warnings of danger went unheeded.  No effective contingency plans were in place.

The failure to manage risk is not limited to governments.  Witness the bankruptcy of General Motors in 2009 and many spectacular collapses, such as Enron in 2001.

There could be much worse to come.  We have so far failed to manage the risk of the worst outcomes of anthropological global warming, despite clear warnings emerging over the past 20 years.

I will be analysing each of these events in forthcoming extensions to this article, with a view to seeing what can be learned about better managing risk.  There are lessons which will be important to regulators, company managers, and investors.

Charlie Nelson, Director Foreseechange, July 2010.

Postscript January 2011

A paragraph in Time magazine of December 6 2010 neatly encapsulates the poor risk management in the USA.  Discussing the Florida recount debacle of the 2000 presidential election, the conclusion reached was:

In other words, people took for granted that nothing bad would happen, which is a luxury of a singularly fortunate land.  Expecting good things was expecting too much.  By failing to prepare for trouble, Americans both encouraged trouble and left themselves few tools when it came.  When you think about it, that has been true of the of the whole disheartening events that followed Florida,  It was taken for granted that terrorists wouldn't cross the oceans, that Afghanistan and Iraq would be cakewalks, that no hurricane would hit New Orleans, that home prices could only go up.  There were warnings, yes, but the warnings were largely ignored.

Plus ca change!

Postscript January 2012

More mass hysteria, this time about the alleged Maya prophecy about the end of the world in December 2012.

Black Swan events and the likelihood of catastrophes.

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