Month: December 2017

Last updated on December 22nd, 2017 at 12:17 pm

The metaphorical interest charges (MICs) and metaphorical principal (MPrin) of a particular can change as a result of retiring other seemingly unrelated classes of technical debt. In most cases, engineering expertise is required to determine technical debt retirement strategies that can exploit this property of some kinds of technical debt.

Financial debts usually have associated interest rates that are used to compute the periodic interest charges. Typically, the interest charge on a financial debt for a given period is the periodic interest rate multiplied by the principal, and then scaled for the length of the time period.

But there are no “rates” for technical debt. Their existence would imply that MICs were proportional to the analog of “principal,” which, in the case of technical debt, is the cost of retiring the debt — the MPrin. MICs depend only weakly on the cost of retiring the debt. Instead, they depend more strongly on the impact of the debt on ongoing operations.

Decision-makers who understand the world of financial instruments at a very sophisticated level might tend to overvalue arguments favoring technical debt management in ways analogous to the ways we manage financial debts. Financial sophisticates might find appealing any argument for a technical debt management program that parallels financial approaches. Such programs are unlikely to work, for two reasons. First, as we’ve already noted, the uncertainties associated with estimating MPrin and MICs make technical debt management decisions more dependent on engineering and project management judgment than they are on the results of calculations and projections (see MPrin uncertainties and MICs uncertainties).

Second, as noted above, the familiar concept of interest rate is inapplicable to technical debt, because the MICs depend on the degree of interaction between ongoing activities and the debt itself, rather than the cost of retiring the debt. And that means that MICs (and MPrin) of one class of debt can change when another class is retired.

Implications of this effect

The possibility that retiring one class of technical debt can alter the financial burdens presented by another class of technical debt has both favorable and unfavorable implications.

As an example of a favorable implication, consider software remodularization. Suppose we have a software asset A that depends on another software asset B. As shown in the left image of the figure, asset A, of which there are many copies, bears two classes of technical debt, D1 and D2. As shown, there is only one copy of asset B. Suppose further that an asset that bears debt D2 also bears debt D1, but an asset that bears D1 might or might not bear debt D2.

To retire D2, engineers have decided to modify B by having it assume responsibility for the tasks that formerly bore debt type D2. They do this even though, as a consequence of this change, B will now bear debt of type D1. Next, debt type D2 is retired. The right half of the figure shows the resulting implementation. The system still bears debt D1, but now it’s located in B instead of A. All instances of type A assets change, and those modifications relieve them of both types of debt. This is a sensible approach, because there are several assets of type A and only one of type B. The end result is that D2 vanishes, and only a single instance of D1 remains. In this way, retiring debt D2 has reduced the MICs and MPrin for D1.

Policymakers can help

Exploiting the salutary opportunities of this property of technical debt provides an example of the risks of adhering too closely to the financial model of debt.

Many different scenarios have the property that retiring one kind of technical debt can reduce the MICs associated with other kinds of debt. Because technologists understandably tend to be more concerned with technical debt retirement strategies that emphasize short-term improvement of their own productivity, policymakers can provide guidance that steers the organization in the direction of enterprise benefits.

Related posts

• The Principal Principle: Focus on MICs
  The Principal Principle is that a focus on the metaphorical principal of a technical debt can be your undoing. Focus on the metaphorical interest charges. Drive them to Zero and keep them there.
• Where the misunderstandings about MICs come from
  Misunderstandings about the metaphorical interest charges on technical debt are costly. They prevent us from exploiting the properties of technical debt that reduce carrying costs and retirement costs. And the misunderstandings arise from the fact that the technical debt metaphor is only a metaphor—technical debt and financial debt are different.
• MICs on technical debt can be difficult to measure
  Unlike financial debt, for technical debt there are no legally required reports or disclosures. We can sometimes estimate MICs, but most organizations don’t track the data necessary to estimate MICs with useful precision. Indeed, developing useful estimates is often technically impossible.
• MICs can sometimes be deferred or advanced without penalty
  Rescheduling interest payments on financial debt is possible only by prearrangement or in bankruptcy, but MICs on technical debt can often be rescheduled by rescheduling work that might incur them. This is useful when we plan to retire assets bearing technical debt, because their technical debt vanishes.
• MICs can differ for different instances of the same kind of technical debt
  For financial debts, the interest charges associated with a unit of debt are (usually) the same for every unit of debt incurred under the same loan agreement. But for technical debt, the MICs associated with a given instance of a class of technical debt might differ substantially from any other instance of the same class of technical debt, even if those instances of technical debt were incurred at the same time as a result of a single decision or sequence of events.
• How financial interest charges differ from interest charges on technical debt
  The common understanding of interest on financial debts doesn’t correspond to the reality of technology-based systems, which are the targets of the technical debt metaphor. Formulating sound technical debt policy depends on understanding the nature of the difference between interest on financial debt and the metaphorical interest charges associated with technical debt.

Last updated on July 3rd, 2018 at 08:02 am

For a financial debt, creditors regularly inform debtors of periodic interest charges, principal remaining, and other parameters of the loan. In many cases, laws require regular reports and explicit statements about interest charges when prospective creditors interact with prospective debtors. By contrast, for technical debt, metaphorical interest charges (MICs) can be difficult to compute with useful precision, even if we know that they’re accumulating. Many decision-makers are actually unaware that MICs are accumulating at all. For an organization to appreciate the full financial consequences of carrying technical debt, everyone in the enterprise must appreciate the concept of MICs.

Unlike financial debt, for technical debt there are no legally required reports or disclosures. We can sometimes estimate MICs, but most organizations don’t track the data necessary to estimate MICs with useful precision. Indeed, developing useful estimates is often technically impossible.

The difficulty of measuring MICs arises from three sources. First, people whose productivity is most directly affected by technical debt — usually engineers — often have difficulty determining with precision the extent of the impact of technical debt on their efforts.

Second, many people are unaware of the impact technical debt has on their results. For example, if a product arrives late to market, the financial costs attributable to technical debt can be computed if we realize that technical debt is partially — or wholly — responsible for the delay. Too often, those who could perform such calculations aren’t sufficiently familiar with the concept of MICs, and in any case, the data they would need for calculating a useful estimate is rarely available.

Finally, a more insidious form of the consequences of technical debt is what we might call the terrifying opportunity. This situation arises when the organization rejects (or fails to recognize) a market opportunity because exploiting it would involve modifying an existing asset or product offering that harbors a heavy load of technical debt. The debt causes decision-makers to assess that the probability of success is so depressed by technical debt that the opportunity seems terrifying, and they therefore reject the opportunity. Typically, terrifying opportunities would be exploitable if the debt-bearing assets didn’t exist at all, because then we would be starting fresh. But given that terrifying opportunities require modifying existing assets that bear heavy loads of technical debt, commitment requires faith that the technical debt can be addressed successfully.

The sense of risk isn’t a reflection on the capabilities of the technical organization. Rather, it’s a result of the challenges involved in working with assets that bear high levels of technical debt. Given past performance of the technical organization relative to these debt-bearing assets, success can seem unlikely.

Computing the cost of a terrifying opportunity requires estimating the cost of not exploiting the opportunity, a difficult task in the best of circumstances. But whatever that cost is, it’s a form of MICs that we rarely recognize.

Building expertise in estimating MICs in all their forms is advantageous to any organization that seeks to make its technical debt more manageable. By making MICs visible, we can bring about better recognition of the cost of carrying technical debt, thereby providing an appropriate motivator for retiring technical debt.

Related posts

• The Principal Principle: Focus on MICs
  The Principal Principle is that a focus on the metaphorical principal of a technical debt can be your undoing. Focus on the metaphorical interest charges. Drive them to Zero and keep them there.
• Where the misunderstandings about MICs come from
  Misunderstandings about the metaphorical interest charges on technical debt are costly. They prevent us from exploiting the properties of technical debt that reduce carrying costs and retirement costs. And the misunderstandings arise from the fact that the technical debt metaphor is only a metaphor—technical debt and financial debt are different.
• MICs can change when other debts are retired
  The metaphorical interest charges (MICs) and metaphorical principal (MPrin) of a particular class of technical debt can change as a result of retiring other seemingly unrelated classes of technical debt. In most cases, engineering expertise is required to determine technical debt retirement strategies that can exploit this property of technical debt.
• MICs can sometimes be deferred or advanced without penalty
  Rescheduling interest payments on financial debt is possible only by prearrangement or in bankruptcy, but MICs on technical debt can often be rescheduled by rescheduling work that might incur them. This is useful when we plan to retire assets bearing technical debt, because their technical debt vanishes.
• MICs can differ for different instances of the same kind of technical debt
  For financial debts, the interest charges associated with a unit of debt are (usually) the same for every unit of debt incurred under the same loan agreement. But for technical debt, the MICs associated with a given instance of a class of technical debt might differ substantially from any other instance of the same class of technical debt, even if those instances of technical debt were incurred at the same time as a result of a single decision or sequence of events.
• How financial interest charges differ from interest charges on technical debt
  The common understanding of interest on financial debts doesn’t correspond to the reality of technology-based systems, which are the targets of the technical debt metaphor. Formulating sound technical debt policy depends on understanding the nature of the difference between interest on financial debt and the metaphorical interest charges associated with technical debt.