The differences between technical debt and financial debt are numerous and significant. We often overlook them, in part, because of the metaphor itself. Managing technical debt as we would manage financial debt is risky for two reasons. First, such an approach would most likely fail to exploit properties of technical debt that can be advantageous. Second, such an approach would likely cause us to overlook opportunities because of reticence about addressing the technical debt problem to the extent necessary for effective control.
The debt metaphor itself is probably at the root of the misunderstanding. The financial metaphor evokes the conventional concept of fixed or slowly varying interest rates. But the reality of technical debt involves loss of enterprise agility or lost revenue. Connecting these two ideas is intuitively challenging.
For the more familiar kinds of financial debts, the interest rate and any rules for adjusting it are set at the time of loan origination. Moreover, financial debts are unitary in the sense that each loan is a single point transaction with a single interest rate formula. For example, the interest rate formula for the most common kind of credit card balance is the same for every purchase. Technical debt isn’t unitary. Each kind of technical debt and each manifestation of that kind of technical debt is, in effect, a separate loan that can carry its own independently variable MICs.
The cost of carrying technical debt can vary with time. It can vary for a given class of technical debt, or it can vary instance-by-instance. Costs depend on the nature of the work underway on the assets that carry the debt. This fact is a source of flexibility useful for planning technical debt management programs. To manage resources, planners can exploit this flexibility to set priorities for enterprise efforts. For example, planning technical debt retirement programs to retire all instances of a given class of technical debt might not be the best choice.
When making technical debt management decisions, respect the constraints that technical debt imposes. Exploit the flexibility that technical debt provides.
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.
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.
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.
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.
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.