Euro compliance is becoming an issue again as companies begin to
trade in the new currency.Nick Huber looks at the cost of
conversion
After a year on the back-burner the euro has returned as a high
profile IT issue. Anglo-Dutch food and household products giant
Unilever this week urged its suppliers to invoice in euros. This
followed Toyota's call earlier this month for 5% of its UK
component suppliers to quote for new business in euros.
Together they add up to a resounding euro wake-up call to UK
industry. The policy of Unilever and the Japanese car giant has
been quickly hailed as the shape of things to come by analysts, who
predict that more multinationals will decide to trade in euros with
suppliers to cut costs.
Meanwhile, last week the Government issued euro guidance that
told NHS bodies not to buy new financial systems from IT suppliers
who have no plans to make their software euro-compliant.
The challenges of euro conversion - cost, planning and project
management - are finally starting to be debated seriously, as IT
managers approach their biggest and most expensive headache since
Y2K.
The UK may not join the euro before 2004 - presuming a Labour
victory at the next election, followed by a referendum and a
two-year transition period.
But when the countries in euroland begin to trade in the euro
from the start of next year, millions of UK companies with European
business will be trading and receiving invoices in euros.
This will also require UK business to have dual reporting
systems to report VAT receipts to Customs & Excise in
euros.
Add rolling three-year company IT budgets into the equation and
it is no surprise that euro consultants are urging IT managers to
start drawing up euro conversion plans for their IT systems
now.
But there is a drawback to euro conversion budgets, said Michael
Draeger, managing consultant for PA Consulting Group and euro
specialist. The costs are difficult to measure and they can also
absorb a growing number of IT department staff.
Last year the British Retail Consortium released figures which
showed that most UK retailers would need three years to prepare for
the single currency, at a total cost of about £3.5bn. If the
timescale is reduced to two years the conversion costs will
double.
The majority of mainland European firms surveyed earlier this
year by PA Consulting said their euro conversion costs would be
£2m. But some of the companies surveyed said their euro conversion
would be as high as £20m.
Firms with complex or proprietary mainframes have a problem when
it comes to euro conversion: the old bespoke mainframe programs
might have been written by a programmer who has long left the
company.
One increasingly popular way round this is to use "wrapping".
This involves using middleware to sit on the output and input
channels of an accounting system, converting the incoming and
outgoing figures from sterling to euros.
This approach can save time and money because it leaves the vast
majority of accounting systems' base code untouched.
The middleware approach, however, is labour intensive and should
only be viewed as a temporary measure, said Rory Corfer, director
of KPMG's EMU unit. "[Middleware] software is a quick fix for a
maximum of a year to 18 months," he said. "It is more labour
intensive and can slow down your output if you have a creaking
mainframe."
But the stress of overseeing a middleware solution pales into
insignificance compared to the demands of a thorough
software-testing programme. A company taking euro conversion
seriously should run three full tests on systems before going live,
according to industry experts. "The first time the system will
fail," said Corfer.
The first test typically involves hypothetical transactions and
conversion routines on mainframes, with the second test involving
the systems' users. Again IT managers should brace themselves to
find report designs going askew, among other problems.
Another concern for IT managers is that they will have to pay
through the nose for euro upgrades or support.
Consultants - who have witnessed euro upgrade rows in
continental Europe - are advising UK IT managers to prepare to
argue for minimal euro upgrade costs from their suppliers.
There is some affordable help at hand though. Accounting
software giant Sage offers users in Ireland a euro toolkit.
Available free to users with Sage insurance cover - at less than
£100 a year - it helps go through the "triangulation" requirements
demanded by euro conversion.
Toyota's announcement has at least refocused boardroom minds on
the IT hurdles in converting business-critical accounting systems
to handle the euro.
The euro conversion process need not turn into a nightmare but
budgets and conversion timetables need to be set now rather than
later. E-business may be the number one priority for many IT
managers but the euro could just as easily make or break their
career.
Euro conversion - the five main options
- Buy a replacement accounting and reporting system
- If you already have a multi-currency accounting system you can
add the euro as another currency
- Hard coding: manipulate source code so it can handle
multi-currency reporting
- Convert old single currency databases so that they only operate
in euros. But this process could take up to six months for large
multinationals such as telecoms firms
- Middleware "wraps" convert transactions to euros.