Bank of Montreal 1998 Annual Report Download - page 61

53
BANK OF MONTREAL GROUP OF COMPANIES
EUROPEAN ECONOMIC AND MONETARY UNION
European Economic and Monetary Union (EMU), which
is to occur on January 1, 1999, will affect all financial insti-
tutions operating within the European market. We do not
expect this issue to have a material impact on our operations.
Our approach to this issue was the establishment of a
program management office, which is monitoring and
coordinating the implementation process. We identified
business processes and clients that may be affected and
developed a plan to address this issue. As a result we
expect to be able to continue serving those processes and
customers after EMU occurs. Systems development costs
for this purpose were not material in the current fiscal year.
YEAR 2000
The year 2000 issue is pervasive as almost all date-sensitive
systems will be affected to some degree by the rollover
of the two-digit year from 99 to 00. Potential risks of not
addressing this issue include business interruption, finan-
cial loss, reputation loss, and/or legal liability.
Our approach to the year 2000 issue is as follows:
We have undertaken an enterprise-wide initiative to
address the year 2000 issue and have developed a compre-
hensive plan to prepare, as appropriate, our date-sensitive
systems to recognize the date change on January 1, 2000.
An assessment of the readiness of third parties with whom
we interface , such as vendors, counterparties, customer s,
payment systems and others, is ongoing, to mitigate the
potential risks that the year 2000 issue poses to us. Our
objective is to ensure that all aspects of the issue that may
affect us are fully resolved in time. However, it is not pos-
sible to be sure that all aspects of the year 2000 issue that
may affect us, including those related to the efforts of
customers, suppliers or other third parties with whom we
conduct business, will not have a material impact on our
operations. We have consistently maintained contingency
plans for vital systems and business processes to protect
our assets against unplanned events that would prevent
normal operations. Additional plans are being developed
to mitigate the effect of potential impacts and to ensure
the continuity of operation throughout the year 2000 and
The total cost of ourYear 2000 program in 1998 was $148 mil-
lion (pre-1998 – $67 million) of which $55 million (pre-
1998 – $18 million) was capitalized. These amounts include
our share of year 2000 costs of joint ventures.
The year 2000 issue is one of the best-known examples
of operational risk. Further discussion on how we manage
operational risk can be found in the Enterprise-wide Risk
Management section on page 48.
beyond. The use of the existing contingency planning
infrastructure will assist in providing optimum coverage
and re-usability of existing arrangements and responsibil-
ity assignments.
Our operations group, Emfisys, acting in support of
all of our lines of business, has overall responsibility for
converting systems to accommodate the calendar change.
Each of our lines of business is responsible for remediation
of the assets used to conduct its operations and provide
service or products to a client, while attempting to ensure
that both the technical and the business risks imposed by
the year 2000 issue are addressed. We have established a
governance structure to deal with this issue, which includes
a Project Management Office and regular monitoring of
progress by the Bank’s Year 2000 Steering Committees and
the Board of Directors.
The process for year 2000 compliance involves four
major steps: inventory, impact assessment and plan, imple-
mentation, integration testing. The implementation step
includes verification, conversion and replacement or retire-
ment of the asset. If an asset is not retired, it is tested and
verified, and only once it is verified does it progress to the
integration testing step. Integration testing is to confirm that
the business functions work accurately and without dis-
ruption under year-2000 specific dates, with all applications
functioning correctly with interfaces and infrastructure. We
plan to substantially complete the implementation of our
critical systems by the end of December 1998. The imple-
mentation of non-critical business assets is planned to be
completed by June 30, 1999. We plan to complete integration
testing of all critical systems by June 30, 1999. We expect
that the principal costs of remediation and testing of assets
will be accommodated by existing resources, primarily
through reprioritization of initiatives. As a result, we do
not anticipate a significant reduction in technology-related
spending to occur after the year 2000 issue is satisfactorily
remedied as resources are redeployed to other projects.
In total, we expect the cost of solving the year 2000 issue
to be approximately $257 million, with an additional
$115 million estimated for capital costs. These numbers
are described in more detail below:
Estimated spending for Year 2000 system changes over seven years (1994 to 2000). This figure represents
our mainframe and centrally supported client server applications. $157 million
Estimated business unit costs, including end-user developed applications, and embedded systems
(elevators, security access systems, etc.) $100 million
Estimated capital costs for central information technology and business units. $95 million of this total relates
to personal computer replacements, software/hardware replacements and special test environments that are
being installed as part of the Year 2000 project, but would have needed to be replaced in any event. $115 million