Euro wake-up call

Euro compliance is becoming an issue again as companies begin to trade in the new currency.Nick Huber looks at the cost of...

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.

  • Read more on IT risk management