Summary
Tech debt introduces not only a delay into anything an IT department is tasked to do but also significant additional cost attached to that delay via missed opportunity cost. In this blog article you will learn how to communicate such risks effectively within the organization to effectively mitigate them.
Introduction
Tech debt is a serious issue that affects almost all businesses. Explaining what it means and how it affects the business to non-tech people is a key responsibility of technology leaders. This blog article shares a useful analogy often used to demonstrate how tech debt affects the ability of a business to implement change.
The kitchen analogy
Imagine that you go into a restaurant and order a meal of your choosing. The restaurant staff takes your order and tells the cook which meal you have ordered. The cook’s job is clear: raw materials needed for cooking need to be taken out of the refrigerator and clean cookware, utensils, plates and a stove needs to be available and ready to start cooking the meal you ordered.
But what happens if the kitchen is not in a clean, orderly state, but in complete disarray; dishes, utensils and cookware are unwashed, not put away to their proper places, countertops and the stove is dirty? In this case the cook first has to clean up. Only after cleanup is finished, can the cook start preparing your meal.
The impact of a disorderly kitchen, or the presence of tech debt, is that it takes longer to deliver anything, in this analogy your ordered meal. As a guest of the restaurant you are not aware that the kitchen is messy, so the slow delivery of your food may surprise you and disappoint your expectations. As a result, you may choose to go to a different restaurant the next time you decide to eat out. This is what tech debt is like, and it can lead to delays and loss of revenue similarly to the disorderly kitchen.
The problem
As explained in the kitchen analogy, tech debt is often invisible to the business outside the IT organization and is likely to cause unexpected surprises when changes in the IT systems are requested by the business. Its impact is delayed reactivity from the IT organization when implementing change, leading to a higher cost of these implementations both in terms of time and money. The key is to understand the full impact of the delay.
For example, imagine that a retailer is working to implement a buy online, pick up in-store (BOPIS) capability in its commerce website. It is currently only able to serve customers who buy online and get goods delivered to their addresses. The retailer decided to invest money to implement missing functionality in its website commerce platform and ERP solutions to support BOPIS. It is estimated that implementing this solution will take 3 months, cost 100K USD, and will yield an additional net revenue of 20K USD per month, therefore the return on investment (ROI) of this change is 5 months.
But what happens if due to tech debt, the commerce platform first needs to get cleaned up or upgraded before implementing any new functions? Let’s assume cleaning up/upgrading the commerce platform will take 3 months and cost 100K USD. Now the total implementation takes 6 months, costs 200K and has a ROI duration of 10 months. Bad news. However, this is not the full impact! Keep in mind that you will go live with the new capability 3 months later, meaning you miss 60K additional revenue. This cost is called the alternative cost or missed opportunity cost. Your true total cost in this case of tech debt is 260K USD.
Additionally, this calculation does not include the potential impact of a competitor of yours implementing BOPIS before you and swaying your customers away from you with a feature they desire and you are not delivering for 3 more months. This would have an additional negative impact on your revenue growth after implementing BOPIS, further extending your ROI duration, if your post implementation monthly revenue increase is now only 10K, for example (revenue you missed originally is still 20K per month!). In this case ROI realization increases to 26 months after go-live!
Another typical example of tech debt is any outdated technology solution that has not been upgraded to its current version and needs to be upgraded before any new features can be used or implemented in it. Such technology components can also pose a wider risk when they are no longer supported by their vendors, such as security risks in unsupported database, application server, operating system or networking technology or any combinations of those.
As you can see the impact of tech debt, through delays and higher costs, is complex and often very expensive, more so than what meets the eye on a first look.
The challenge
The challenge in most organizations is to convince the business to invest necessary resources to avoid tech debt. The reason for this is that businesses often fail to see the tangible monetary benefits of investing to reduce tech debt, due to not fully understanding the total cost impact of delays caused by tech debt. Investments to reduce tech debt are not perceived to be adding immediate value because they do not deliver clearly visible and easy to understand tangible money generating capabilities such as a new function, feature or service for customers.
The solution
In order to maintain investing the time and money needed to control tech debt buildup, it is important for the business to understand what tech debt is and what its full impact is on the business results. When calculating business impacts of delays caused by tech debt as described above, decision makers gain visibility and understanding into how much money in total is lost because of delays – including the cost of not having a new capability in place sooner. This alternative cost is what the business is first and foremost trying to avoid by cleaning up tech debt. Therefore any budget assigned to cleaning up tech debt, up to and including the alternative cost of its impact, is justifiable (in the above example of implementing BOPIS, it is the 60K missed opportunity cost).
Conclusion
Tech debt has major impact on businesses, often to a degree not easy to calculate and fully understand. By investing in eliminating tech debt, the risk of delays are mitigated. Convincing management to fund investment to eliminate tech debt is achievable when explaining the full cost of ongoing tech debt.
Contact us to learn the full cost of your tech debt and how it can best be reduced!