How financial interest charges differ from interest charges on technical debt

Second only to the term debt, the term interest is perhaps the most common financial term in the literature of technical debt. In the financial realm, interest charges are the cost of using money, usually expressed as a percentage rate per unit time.

Credit cards also have interest charges
Credit cards. Revolving, unsecured, charge accounts are perhaps the most familiar form of financial debt. They do have one thing in common with technical debt: with either one, it’s easy to get into debt over your head.

The notion of interest is deep in our culture. People understand it well, but the way they understand it corresponds to interest rates that are fixed, or at worst relatively slowly varying. This understanding creates a bias in the way we understand technical debt, in the sense that we perceive the elements of technical debt as imposing a cost that is a relatively stable fraction, per fiscal period, of the initial MPrin. This belief 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.

There are two fundamental reasons why metaphorical interest charges on technical debt differ from the interest on financial debt.
  • Metaphorical interest charges depend strongly on whether and how the people of the enterprise interact with the assets bearing the technical debt.
  • The metaphorical interest charges on technical debt include the value of opportunities lost to the enterprise (opportunity cost) due to depressed productivity and reduced organizational agility.

Neither of these factors has a direct analog in the financial context. In finance, the interest charges depend solely on a mathematical formula based on the interest rate and the size of the principal.

In the next few posts we’ll explore the properties of metaphorical interest charges. This investigation will help clarify how they differ from financial interest charges, and how that difference contributes to difficulties in managing technical debt.

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MPrin for missing or incompletely implemented capability

In some instances, technical debt is actually a missing or incompletely implemented capability. For example, absence of a fully automated regression test suite can create difficulties for testing a complex system after a series of modifications. Defects can slip through. That would result in reduced productivity and velocity. In this case, the projected cost of implementing, testing, and documenting the test suite, and training its users, would constitute the initial MPrin of the outstanding technical debt. This definition differs from some definitions, because it includes testing, documenting, and initial training. In general, from the enterprise perspective, when identifying the MPrin associated with missing or incompletely implemented capabilities, we must include all artifacts necessary to eliminate reductions in productivity and velocity.

A concrete building under construction
A concrete building under construction. Concrete takes about a month to fully cure, and until it cures it doesn’t reach full strength. If we waited for full curing before pouring the floor above, multistory concrete construction would be slow and very expensive. So we start on the next floor after only a few days.  Because the floors of concrete buildings can’t support themselves for about a week or so, they need to be shored up by the floor below, and re-shored by the floors below that. The shoring constitutes a technical debt incurred because of the “incomplete implementation” (partial cure) of each floor. We retire that debt incrementally, floor by floor, by removing the re-shoring as the building gets taller. More about shoring and re-shoring
But even if we include these items in the conventional definition, MPrin at retirement can exceed the savings at the time we incurred the debt. For example, the assets involved can change. Moreover, if retiring the debt  a revenue stream interruption, and that revenue stream grows significantly, the MPrin, which includes the lost revenue, can also grow significantly.

Technical debt associated with incompletely implemented capability presents unique problems, because debt of this kind can be retired in three distinct ways. First, we can complete the implementation. The MPrin associated with this approach can grow beyond the initial cost of completion, for the usual reasons. Second, we can cancel the capability altogether. If that happens, retiring the debt completely would require removal of all artifacts that comprise the completed parts of the incomplete implementation. But full retirement can also require that we survey all components that interact with the retiring elements to determine whether they contain accommodations that are no longer necessary. Finally, we can choose a middle path, in which we adopt some parts that have been completed, reject other parts, and add whatever is necessary to create a limited version of what was originally planned.

It’s worth mentioning an important attribute of non-physical assets—software, procedures, legislation, regulations, and so on—that makes the technical debt associated with incomplete implementation so difficult to manage. The image above shows several levels of a concrete building under construction. The vertical members between the levels are part of a shoring system that supports the levels of the building until the concrete is cured well enough to support itself. They constitute a kind of technical debt that must be “retired” before the building can be completed. The teams constructing the building could never forget to remove the shoring because it gets in the way of installing the windows and walls.

But things are very different with non-physical assets. It’s easy to forget to remove intermediate artifacts, or elements that were being tried but didn’t work out. Many non-physical assets are perfectly functional carrying that kind of technical debt. The problems associated with that debt become evident with time, as the asset becomes increasingly difficult to maintain, extend, or defend.

It is this property of non-physical assets that makes technical debt management so much more difficult than it is with physical assets. Not more important, just more difficult.

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MPrin when standards or regulations change

The MPrin of technical debt that’s incurred as a result of a change in standards or regulations, internal or external, is the cost of bringing all affected assets into full compliance. The conventional definition of the MPrin for this kind of technical debt includes only the cost of aligning the existing assets to the new standards or regs. Properly accounted for, however, the MPrin should include ripple effects, which are the changes in other assets that are required not directly by the change in standards or regs, but by the requirement that other assets maintain compatibility with the assets affected directly by the change in standards or regs.

The phrase standards or regs is beginning to bother even me. I’ll switch to standards with the understanding that I mean standards or regulations (or regs) except when I say so explicitly.

A view of the left side guard on a truck operated by the City of Cambridge, Massachusetts
A view of the left side guard on a truck operated by the City of Cambridge, Massachusetts. Side guards prevent vulnerable road users (pedestrians, bicyclists, and motorcyclists) from being swept under trucks and crushed (and often killed) by the truck’s rear wheels. Cambridge has a pilot program affecting city-operated trucks, but Boston is requiring all contractors to install side guards. This change in regulations creates a technical debt for all truck operators  whose vehicles lack side guards. [Volpe 2017] City of Cambridge photo courtesy U.S. Department of Transportation.

The activity required to align existing assets to the new standards can have expensive consequences, which must be included in the calculation of MPrin, but which, unfortunately, are often overlooked or accounted for in other ways. For example, the testing required by the standards alignment effort might require a service interruption or product availability delays or interruptions, which could entail a revenue stream delay or interruption. That lost revenue is certainly a consequence of the debt retirement effort.

Deferring retirement of this class of technical debt can expose the enterprise to the risk of MPrin growth in two ways. First, when we defer debt retirement, the number of instances of violations of the new standards can increase, of course, as new assets are developed in compliance with the obsolete standards. Second, and less obvious, perhaps, is the potential for increases in the number of ripple effect instances when we defer debt retirement. These instances arise from increases in the number of artifacts that require updating, not because they are not compliant with the new standards, but because they need to be made compatible with the components that are eventually modified to comply with the new standards. In this way, MPrin at debt retirement time can differ from — and greatly exceed — the savings realized when we first  incurred the debt.

However, as with most technical debts, deferring retirement of this class of debt can sometimes be wise. For example, if the assets that bear the debt are about to be retired, the technical debt they carry vanishes when those assets are retired.


[Volpe 2017] Volpe National Transportation Systems Center. “Truck Side Guards Resource Page,” October 2017.

Available: here Retrieved: November 22, 2017

Cited in:

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Examples of MPrin in four scenarios

Some examples might help to clarify the differences between the principal of financial debts and the MPrin of a technical debt. The examples to come in the next four posts are designed to illustrate the unique properties of MPrins of technical debts.

Technical debt can arise as a result of:
  • Changes internally within the enterprise
  • External environmental changes that directly affect existing assets
  • Changes in the competitive environment
  • Insights and changes in perception that lead to changes in objectives
  • Existing technical debt
  • Deferring decisions about almost anything

By contrast, we incur financial debt only as a result of decisions to incur financial debt.

The examples sketched below illustrate some of these phenomena. They’re described more completely described posts indicated.

Development projects

This example illustrates how technical debt can develop as a result of unanticipated insight regarding a marketing opportunity for a new product line. It shows how technical debt can arise independent of any decision made within the enterprise, and without any changes to assets of any kind. More: “MPrin in a development project

Platform component upgrades

We’ve already provided an example of technical debt arising from a platform upgrade. In this example, we show how deferring a platform upgrade creates new complications not present in the previous example, by illustrating how total MPrin can increase after the debt is incurred. More: “MPrin in platform component upgrades

Standards or regulatory changes

Changes in standards or regulations, whether internal, industry-wide, or governmental, can create technical debt. In some cases, the enterprise might not even be aware of the new debt. More: “MPrin when standards or regulations change

Missing or incompletely implemented capability

When a capability is incompletely implemented, it’s clear that the part left undone constitutes technical debt. What is less clear is what happens when the capability implementation is halted or rescinded. Trying to avoid new technical debt can actually be the cause of new technical debt, albeit of a different kind. More: “MPrin for missing or incompletely implemented capability

Whether or not any similar scenarios have happened in your organization, these discussions are helpful for gaining insight into what kinds of technical debt policies can assist your organization in managing its technical debt. Let me know if you have experience with situations in which problems can be traced, even if only in part, to treating technical debt as if it were financial debt.