Last updated on July 8th, 2021 at 11:48 am
Formulating sound policy vis-à-vis technical debt requires a thorough understanding of the distinction between the MPrin associated with a technical debt and the principal amount of a financial debt. The policy implications of the properties of technical debt arise from three fundamental differences between technical debt and financial debt.
MPrin can change spontaneously
For most financial debts, a formula determines the principal amount. Voluntary actions of the debtor can also affect the principal amount. For example, the debtor might make periodic payments on an installment loan, or new purchases on a credit card account. By contrast, MPrin of a technical debt can change absent any action by the “borrower.” For example, changes in regulations, standards, or technologies can all cause changes in MPrin. More: “How MPrin can change spontaneously”
Technical debt can create more technical debt
Technical debt left in place can create more technical debt without the knowledge or consent of the debtor organization. By contrast, the principal amount of a financial debt can grow, but law or regulation requires notification—and in some cases consent—of the debtor. More: “How MPrin can change spontaneously”
Projecting MPrin with useful precision might not be possible
The cost of retiring a technical debt can depend on how the asset bearing the debt has changed over the life of the debt. And it can depend on what other projects the enterprise is executing at debt retirement time. These factors are difficult to predict. By contrast, projecting the principal amount of a financial debt is formulaic. More: “Useful projections of MPrin might not be attainable” The policy implications of these properties of MPrin can be profound. First, spontaneous change in MPrin implies a need for investments in market and technological intelligence. The intelligence of greatest value focuses specifically on potential effects on technical debt. Second, existing technical debt can lead to creating new instances of that debt or other debts. We can limit this “contagion” if we know what kinds of technical debt are most likely to exhibit this phenomenon. Finally, the difficulty of projecting MPrin implies that typical reliance on analytical modeling of enterprise asset evolution in preference to human judgment might be unwise. A wiser course might be investment in employee retention programs focused on the individuals who can provide the necessary wisdom.
This is just a sketch of the problems policymakers confront when dealing with the properties of MPrin. I’ll be addressing them in more detail in future posts.