Technical debt is quickly becoming a widespread concern for organizations relying on IT to achieve their business goals. If not tackled in time, it can result in product delays and spiraling costs, leaving developers and testers frustrated and angry.

To avoid drowning in technical debt, you need to take it by the horns. Read on to uncover how understanding the technical debt score can enable you to take the right steps towards improved business performance.

What Causes Technical Debt?

In a survey by McKinsey, CIOs estimated that technical debt “amounts to 20 to 40% of the value of their entire technology estate.” The same study also found that over 30% of CIOs find over 20% of their tech budget otherwise dedicated to new products being diverted to resolving issues pertaining to technical debt.

Technical debt occurs when organizations do not think through their IT implementations or make compromises in planning, testing, and implementation in the rush to release. While a small amount of technical debt is normal and unavoidable, when it gets out of control, it acts as a massive stumbling block – crippling not just the system in consideration but also the business as a whole.

So, what factors lead to technical debt? Let’s look at the top reasons:

  • Investing in new IT systems without carrying out a detailed cost-benefit analysis
  • Embracing modern tech innovations without sufficiently training users to use those systems
  • Releasing functionality to meet the time-to-market deadline without sufficient testing
  • Making tech decisions without considering the implications or understanding their bearing on the business
  • Not modernizing legacy systems despite the costs associated with operating and managing them.
  • Making the underlying IT infrastructure too rigid to adapt to changes in business or customer needs
  • Opting for quick workarounds to resolve system issues instead of taking the time to carry out detailed root cause analysis

How To Calculate a Technical Debt Score?

Minimizing technical debt requires organizations to quantify it first. Calculating the tech debt score can help understand the problem’s scale and identify a feasible target state while determining the corresponding economic benefit from an improved score.

To calculate your technical debt score, you must first understand your total IT change budget for the past five years. Then, list down how this change budget is allocated in terms of % spend on applications you want to have shortly, % spend on application integration, and % spend on applications you don’t intend to have shortly. Based on these figures, you can arrive at a score that defines your technical debt.

How Does Tech Debt Score Impact Business Performance?

McKinsey’s recent analysis of tech debt at 220 companies revealed a significant correlation between technical debt score and business performance.

Therefore, improving the tech-debt position can help direct technology resources toward initiatives that boost revenue and improve business performance. It also empowers businesses to proactively work toward lowering their risk levels and securing the path for longer-term performance.

So, how exactly does technical debt score impact business performance?

  • Organizations with low scores often face high-cost security issues and frequent regulatory and safety implications. They also witness a high turnover of employees and need to fall back on external contractors to carry out business operations. At the same time, they experience regular downtime of systems, leading to delayed projects and slow response to market conditions.
  • Organizations with a high score can efficiently deal with sporadic security issues – with little or no regulatory intervention. They have a large pool of in-house resources dedicated to completing projects within time and budget. Systems run efficiently with hardly any downtime, allowing the business to be in line with time-to-market demands.

How Can You Manage Your Technical Debt?

If you want to efficiently manage your technical dept, you must have a well-planned digital transformation strategy in place to hold the technology initiatives in place. A coherent and clear strategy can throw light on the current challenges and the steps needed to strengthen the IT ecosystem and eventually minimize the technical debt.

Be clear about how you can prioritize your tech-debt efforts. Spending too much money on modernizing applications that do not contribute to minimize tech debt or using approaches that won’t reduce tech debt can cause the score to plummet further. Here are some tips to keep in mind:

  • Carry out a comprehensive analysis of the IT assets and make a list of all the tools and systems you currently use
  • Understand how technical debt is distributed across the organization, including where it originates and how much it costs
  • Categorize the assets based on their age, efficiency, and cost of maintenance, and understand which assets contribute the most to technical debt
  • Allocate appropriate budget for modernizing, refactoring, or retiring systems that add to the technical debt
  • Build a robust roadmap with clearly defined priorities and deadlines and make sure to factor in technical debt for every IT activity that is carried out
  • Curate a remediation program that is tailored to the organization’s specific profile, challenges, and needs
  • Make sure to have the business and IT teams work together to make the right choices: trade-offs between investing in business enablement versus paying down tech debt.

In a Nutshell

If businesses want to scale, ride on the innovation wave, and succeed in today’s competitive marketplace, they need to be aware of the impact technical debt can have on their business performance.

Since a high debt can lower the competitive position, frustrate the employees, and slow down the digital transformation efforts, taking the time to address it thoughtfully and carefully is the only to drive revenue and growth. Reach out to us to know more.