# Understanding Technical Debt: Strategies for Effective Management
If you have worked in technology transformation, you have probably heard the term technical debt. Programmer Ward Cunningham, a co-author of the Agile Manifesto and creator of the Wiki, coined the term in a 1992 article. He wrote that while the enterprise may save money in the short run by shipping early versions of code or software, the long-term “interest” from the tech debt inevitably accumulates, making the initial problem more costly to fix over time.
However, as the term has grown in popularity, it has morphed to encompass a host of issues that are currently facing technology transformation efforts. Technical debt (also known as code debt) has grown from simply the implied cost of additional work caused by releasing a time-limited solution, to a catch-all term in the tech transformation space. It is used to describe everything from bug fixes to outdated legacy code and even to imply that a company’s technical infrastructure is behind or needs major revamping.
Technical debt is something both business and technical managers must handle. The desire to ship products quickly, pivot to new business models, and launch new features often leads to shortcuts in development. The decision to take on tech debt is a recognition of the trade-off between agility and perfection. Even well-designed software can accrue tech debt when the needs of the organization change.
Tech debt may not sound great, but when managed effectively, it can be a powerful tool that enables businesses to move faster, innovate, and adapt. The key is understanding how to balance the short-term need for speed with the long-term requirements for stability and scalability. This article is a practical guide that not only answers the question, “What is technical debt?” but also provides effective solutions for managing it.
# Table of Contents:
# What Technical Debt Is Not
To effectively manage technical debt, it’s important to first understand what it is—and what it is not. So, what is technical debt? Technical debt refers to the trade-offs made during development to achieve faster delivery or meet immediate business needs, with the understanding that these trade-offs will require rework in the future. It is not simply the result of poor decision-making or resource limitations; rather, it’s a deliberate, strategic choice.
However, the term “technical debt” is often stretched to describe other strategic or operational issues that cannot be resolved with technical solutions alone. Mislabeling these issues can hinder your ability to address the root causes effectively.
Here are some activities often mistaken for technical debt:
A wrong feature or deferred functionality. This is a design issue, not technical debt.
Example: Adding features that don’t align with customer needs or business goals.Unreasonable deadlines forcing quick releases. These are resource management issues.
Example: Rushing a product release without sufficient time for testing or refinement.Lack of product ownership or customer feedback. Definitely not tech debt: it’s a management problem.
Example: Building features based on assumptions instead of actual user feedback.Bad or unreadable code. Poor code management isn’t technical debt.
Example: Writing complex or unstructured code that makes future updates difficult.Lack of documentation for processes, projects, or code. This is an issue of poor documentation or process management, not technical debt.
Example: Not documenting code or workflows, leading to confusion during maintenance or handoffs.
The last two points are especially important. Bad documentation or non-annotated code are often mischaracterized as tech debt when they are issues related to management and process. A key element of technical debt decisions should be rational choices based on project constraints.
# Good vs. Bad Technical Debt
Technical debt is the cost of doing business. All technology must eventually be replaced or rebuilt to evolve with changing needs and new opportunities. However, like financial debt, there is good technical debt and bad technical debt.
What is Good Tech Debt?
Good debt is used to strategically create future opportunities. In financial terms, good debt includes investments like education, property, or assets that appreciate over time and generate more value than the initial cost.
Good technical debt might involve decisions such as releasing a minimum viable product (MVP) to gather user feedback and validate market assumptions. While this approach may incur short-term technical debt, it provides valuable insights, drives product iteration, and ultimately positions the company for greater long-term success and revenue growth. It’s an intentional trade-off made with a clear path to future value.
# What is Bad Tech Debt?
In financial terms, bad debt is money used on assets that are not valuable or depreciate rapidly over time. For example, buying a house built in a known floodplain or purchasing a car that turns out to be a lemon and breaks down immediately.
Similarly, bad technical debt is continuing to invest in products that do not align with business purposes and yield increasingly minimal returns. Examples would be software that is increasingly outdated or costly to maintain, such as solutions that are still coded in an outdated coding language, such as COBOL or C. The risks of bad technical debt include increased maintenance costs, decreased agility, lowered team morale, increased technical complexity, and higher risks of bugs and failures. If left unchecked, bad technical debt can compound over time and hinder a company’s ability to scale, innovate, and remain competitive.
# 5 Ways To Examine Technical Debt
Technical debt is an inevitability of any project. Whether it’s a good or bad decision to ship code early and accrue tech debt can only be determined in hindsight. However, understanding the types of technical debt you already have—and how it is currently being managed—is essential for developing a clear strategy. Technical debt impacts your organization’s agility, ability to innovate, and overall competitiveness.
Examining and proactively managing technical debt not only supports growth but also helps you integrate it effectively into your broader tech strategy. Here are five ways to examine and evaluate your technical debt.
# 1. Intentional vs. Accidental
When determining the type of tech debt, begin with this question: are you aware that you have debt? Are your development and business teams aware of the trade-offs they are making to ship code or patch a system?
Intentional
Intentional tech debt is deliberately taken on for strategic reasons, typically to speed up development or meet an urgent business need.
- Example: A company releases a product with known performance issues to capture early market share, with a plan to address the issues later.
Accidental
Accidental technical debt occurs when unintentional errors are made. It can happen when the quality of the code or IT needs improvement due to inherited tech from a former colleague or third party.
Example: Bit rot or software entropy occurs through small, incremental changes made by many people over time. The software devolves into a complicated, incomprehensible mess and can break systems entirely when pushed beyond its original operational parameters.
# 2. Accumulating Debt: Low vs. High Technical Gearing
In finance, gearing refers to the ratio of a company’s debt relative to its equity. Applied to tech debt, technical gearing is the ratio of the technical debt of a company to the benefits of the process.
Low Technical Gearing
Low technical gearing means the company’s income is higher than the cost to remediate the technical debt.
Example: In this scenario, most of an engineer’s time is spent not on servicing the debt through tasks like bug-fixing, but instead through the roll-out of new features, which allows the business to be more agile and responsive to changes.
High Technical Gearing
If a company has high technical gearing, the technical debt is large enough that most of the company’s income is spent servicing the debt. This means the engineering team spends most of its time patching the system (servicing the debt) rather than innovating.
Example: A legacy system that’s been made a lynchpin of a company’s product lifecycle being continuously patched although it’s no longer fit for this purpose.
# 3. Prudent vs. Reckless
With any kind of debt, you want to be sure you are taking it on with thoughtful consideration. Just like you wouldn’t, or shouldn’t, recklessly max out your credit card without a reasonable payment plan in place—you shouldn’t recklessly accrue technical debt without a plan for paying it down.
Prudent
A prudent team understands the rationale behind the tech debt they create. While they cannot predict the future, they understand they are borrowing against future returns and have a plan in place to manage time effectively.
Example: Understanding the scale limitations of a particular feature and having a plan to add capacity or replace it should a user capacity threshold be met.
Reckless
A reckless team treats technical debt like Maverick from Top Gun—writing checks their body (or in this case, their tech) can’t cash. They do not understand the impact of their decisions or have a plan to pay back the technical debt they’ve accrued.
Example: Asserting a deadline over functionality and prioritizing product release over understanding limitations.
# 4. Ramifications: Linear vs. Exponential
All debt grows over time, but not all debt grows at the same rate. While some debts grow steadily and predictably, other debts can grow massively and affect an organization’s ability to conduct business.
Linear
Technical debt that grows in a predictable, linear way and will not completely derail the company if it needs to be taken offline to fix, is good, safe debt. This type of tech debt tends to be smaller issues that limit elements of an organization’s functionality or product rather than the entire organization.
Example: A lack of automated testing for software quality.
Exponential
Exponential tech debt can cause cascading failure to multiple parts of the organization if it ever hits a break state. These technical debts are related to fundamental elements of a company’s business model, and failure to address them impacts not just a company’s tech infrastructure but also its reputation and ability to do business.
Example: If a data company limits the amount or throughput of data it can ingest. An organization that carries more than one instance of exponential technical debt is at high risk of default.
# 5. Mitigating Debt: Write-Off vs. Sunk Cost
Sometimes, a technical solution simply does not fit its purpose. Whether it be the collapse of a vendor, the lack of scalability in a solution set, or a bad underlying assumption in the platform, some technical debts are simply not worth servicing. This is especially prevalent in companies with a “fail fast” mentality. When this occurs, companies are left with two choices: keep investing or write the tech debt off.
Write-Off
Acknowledging that a technical debt has gone bad and needs to be written off or replaced is an indicator of good technical debt decision-making. While tech debt that must be written off is not good debt, if the decision is made decisively and the technical debt is relatively contained (i.e., low leverage and linear), the loss can potentially be absorbed by performance in other business areas and can pave the way for other more holistic solutions.
Example: A company decides to replace an outdated platform that no longer supports growth rather than continue investing in maintenance.
Sunk Cost
Doubling down on false assumptions and chasing good money after bad tech debt is a marker of poor decision-making. It can lead to the technical environment failing entirely to meet the business's needs.
Example: Continue patching a legacy system well past its useful life rather than investing in a more scalable and efficient solution.
# Final Thoughts on Managing Technical Debt
While the term technical debt has been around for almost three decades, it’s still being misrepresented and often neglected in many organizations’ overall tech strategy. Code and software need constant updating and revisiting, thus managing technical debt must be an important part of tech strategy.Like any sound financial investment, technical debt that is undertaken strategically—and with a repayment plan in mind—can be a valuable tool for an organization to achieve accelerated growth.
Related Content: 5 Ways To Help Agile Teams Move Faster
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