Digital Advisory Services

Technical Debt: The True Cost of Delays

Posted on December 14, 2022 by

Ben Smith

Ben Smith

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Technical DebtMaking strategic business decisions has never been about simply throwing money at a problem. Resources—be it human or financial—are limited. We may strive to calculate the ROI of every project, but we know keeping the business running sometimes comes down to putting out fires.  

The most immediate—or loudest—issues get the attention. While they too may come from genuine need, we quickly start accumulating technical debt from projects we set aside when we only focus on short-term needs. We recently spoke with Brent Yax, founder of the IT support firm Awecomm, about how to get your arms around technical debt before it starts taking on a life of its own. 

What is Technical Debt from a Business Standpoint? 

Technical debt is used in IT to describe things that need to be done but are deferred for any number of reasons. They can be as complex as a legacy system replacement or as simple as a website security update that is on the shelf until fewer users are on the network.  

Business leaders clearly understand financial debt. Whether short-term, long-term, or somewhere in between, they can point to financial documents that state when the debt was incurred, the reason for it, as well as the pay-back period and principal and interest owed. 

Who Has Technical Debt? 

Many digital advisory clients come to Clayton & McKervey with a hefty list of competing projects all vying for attention. While some wish-list items are mixed in, many of these projects are updates necessary to remain compliant, hardware changes that offer undeniable productivity gains, or software implementations that provide game-changing insights and analytics 

Delaying projects creates technical debt for these companies—and it is a fair bet to say that your organization has some existing delays.  

Evaluating the Cost of Technical Debt 

The tangible cost of financial debt is the principle that you will need to pay back, along with the interest that is accrued over the lifetime of a loan. With technical debt, there are unknown values that need to be quantified to assess its true cost.  

Start by determining the direct cost of the project if it were to be implemented immediately. For example, to provide everyone with double monitors that would enhance their productivity and ease of use, multiply the number of units needed by the cost of the monitors, cables, and stands and then extrapolate it to assess the indirect labor cost. 

Next, look at the value that the project would bring to your organization once it is implemented. If your cost/benefit analysis anticipated a 15% increase in productivity for A/P processing, then you are foregoing that productivity benefit during the delay before implementation, so it must be added into the equation. Imagine your payroll is $100k per month and a new tool could save you 15%. If you delay this initiative for six months, it will cost you an additional $90k on top of the cost of the initiative. 

What is the Top Misconception About Technical Debt? 

Brent explained that most people assume there is a one-to-one trade off when choosing to delay an activity. Unfortunately, that is rarely the case. The loss of not reaping the benefit of the project is one aspect, but others should also be evaluated. 

For a security patch that is on the shelf waiting to be implemented on the weekend, the cost that you accept is not just the benefit of using something that you paid for, but it is also the acceptance of the security risk that you are taking by not applying the patch sooner.  

The odds of an issue occurring may feel minimal for a short delay, but it nonetheless must be acknowledged and added in. Delays further out have the potential to increase your exposure exponentially.  

What Else is Concerning About Technical Debt? 

With items on your project list today, you know the cost, expected duration, systems impacted, testing requirements, and assigned resources. With technical debt, the most unsettling piece can be the loss of control.  

If your punch list has a task to expand a data field to process a million-dollar transaction, when one comes through before it is completed, you are now at the mercy of your current circumstance. You have lost the edge of being able to control the implementation timeline and assess what will happen in downstream systems, and you must shift resources and incur additional costs to address the situation within your production environment.  

What is the Biggest Contributor to Technical Debt? 

Deferring the financial cost of handling technical debt items may seem like the obvious answer, but it is rarely the case. More often, it is limited team member resources—particularly with small businesses that may not have a dedicated IT person or a situation where growth needs have outpaced team expansion.  

Small and mid-market operations rightly focus the bulk of their attention on running the business and selling their products. As Brent mentioned to us, when someone says, “now you need to paint the ship,” and you know that it is not something that will deliver services or get you a new client, the default for these items is sending them to the backburner. 

The Impact of Technical Debt on Staffing 

In today’s environment, every company has recruiting and retention at the top of their priority list. The weight that technology contributes to driving employee perception is significant. 

When people walk into an environment and sense a lack of investment in current software, systems, and tools, many perceive that a low value would be placed on their contributions. In contrast, if tech is used to automate routine tasks, provide secure portals for client interactions, and to facilitate remote work, then the perception will be much different, and you will likely attract better candidates and retain talented staff.  

What is the Best Way to Reduce Technical Debt? 

Getting technical debt to an acceptable range is doable.  

Create a baseline by assessing where you are today in terms of systems, resources, and the risk of not completing each item before you focus on where you want to be. Identify best practices in your industry for security and software. Once you have defined the future, map out the transition from your current state to your future state including resources, dependencies, and any required training.  

Quantify the baseline in terms of employee satisfaction, turnover rates, and financial and productivity metrics while not forgetting about your company culture and any potential adoption challenges.  

As technology and non-technology investment are completed, revisit the baseline and determine if the change has had its intended effect of resolving the gap and creating the expected value add. Take on one or two unrelated projects at a time so that their impacts can be clearly gauged, and momentum gained with each success. 

The Key is Execution 

Understanding the true cost of delays, the agility being sacrificed, and the risk accepted will help with developing a roadmap to reduce technical debt in a way that is aligned with your strategic goals. Naturally, assigning resources, setting deliverable dates and managing the execution of the plan is required to gain value from the projects and mitigate your vulnerabilities.  

The transparency gained by a thorough and continually maintained technical debt assessment provides data that will enable organizations to make better informed decisions. Concurrently, ensure that processes are put in place to routinely manage incoming projects and tasks to keep them from being added to your technical debt list. 

As projects are completed, management will inherently gain a deeper understanding of the value equation for technical debt and the baseline will improve. You will be in control of the timeline and have visibility into the financial return of each investment. 

Keep in mind that when you have technical debt you are saying, ‘I’m delaying that profit and all the benefits from it and I’m going to incur some risk.’ You will find that your resolve will grow, and the time and resources invested in reducing the technical debt that is impacting your organization—despite it not being a liability on your balance sheet—will result in greater revenue and higher profits. 

Continue the Conversation 

If you would like help with addressing the scope of your technical debt or creating a game plan to resolve it, the Digital Advisory team at Clayton & McKervey welcomes the opportunity to assist you. Contact us today to learn more. We look forward to hearing from you! 

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Ben Smith

Shareholder, Consulting

Ben leads the firm’s consulting group, helping middle-market clients optimize results through transaction services and digital advisory support.

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