Management Debt: I

The concept of technical debt has been useful to decision-makers in the software engineering community, where it's used to evaluate relative costs of design choices. Choosing a low-cost approach that creates problems in the future is analogous to taking on a debt that incurs interest charges until it's repaid. Strangely, this metaphor isn't as popular in general management circles, where it may be even more useful as the concept of management debt.

Management debt arises as a consequence of making choices that might be very attractive in the near term, but which create recurring costs in the long term.

For instance, consider the problem of updating a mainframe-based IT operation. Although a less mainframe-intensive operation might be more effective, more nimble, and more compatible with today's labor market, the near-term cost of conversion can be staggering, due to the cost of replacing the capabilities of the custom software that has accumulated over the years. Continuing with the mainframe avoids those near-term costs, but it incurs ongoing costs in the form of inflexibility, high overhead, and inability to exploit modern technologies. These latter costs can be viewed as the interest on management debt resulting from a decision to defer payment of the "current bill" — namely, the cost of converting the mainframe operation.

Here are two essential insights about management debt for decision-makers and those who support them.

It's not the debt that matters, it's the interest

Since actual financial debt is usually undesirable, we sometimes regard "management debt" as undesirable in an absolute sense. Not so.

Management debt isn't the problem. The problem is the "interest" — the long-term, recurring costs that result from the debt. When resources are allocated to paying the interest on management debt, the organization sometimes misses opportunities because of insufficient resources.

When deciding Management Debt is the
consequence of decisions
that favor low-cost
approaches carrying
long-term, recurring
costshow to pay down management debt, emphasize those components that generate the highest recurring costs. Use the savings to pay down remaining debt.

Doing nothing usually seems best

There's a natural reluctance to commit large chunks of available resources to any effort, especially when that effort is unglamorous, or doesn't produce immediate revenue. We look longingly at alternatives that are more appealing, either because they do produce revenue, or because they generate good feelings or praise.

And when we do look longingly at alternatives, we tend not to focus on the long-term costs of failing to pay down management debt. Not recognizing these costs might be an example of the cognitive bias known as the Availability Heuristic. It's difficult to imagine the long-term costs of a decision, and it can even be difficult to accept the closely reasoned arguments of experts who are able to imagine those consequences. See "Nine Project Management Fallacies" for more.

In Part II, we'll take a slightly more quantitative approach to management debt.  Next in this series  Top    Next Issue

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