The concept of management debt, like technical debt, is useful for forecasting the costs of consequences of decisions. Projections of recurring charges resulting from decisions can help discriminate among alternatives. Here are four tips for those who want to project the costs of management debt.
- Quantifying management debt is distasteful
- Even when we understand a decision's long-term costs, projections depend on market conditions, technological evolution, the legal environment, and many other factors. Quantitative projections can face criticism of their most basic assumptions.
- Still, there's an irony in these criticisms. We have little difficulty accepting three-year and five-year projections for projects we adore, or for the enterprise itself. The same assumptions used for those projections can serve for projecting the costs of management debt. True, some additional estimates might be needed, but they're usually no more difficult to construct than are the estimates we're already making.
- What makes the interest on management debt so much more difficult to project is very simple: it's distasteful.
- Opinions about management debt can be political
- Whenever we quantify the consequences of a distasteful decision, and the projections we make are debatable, politics enters the conversation. The likelihood and intensity of the politics increases with the importance of the resources under debate. Political activity in itself is not unhealthy, but long-lived, intense political debate can become toxic.
- A pattern of political activity surrounding issues of management debt can make effective internal resolution so improbable that the debate can remain unresolved long enough to threaten organizational survival. When this happens, seek credible impartial opinions outside the organization.
- Lost revenue opportunities are rarely considered
- When the What makes the interest on
management debt so difficult
to project is very simple:
it's distastefulrecurring costs of management debt prevent the organization from exploiting revenue opportunities, we must charge those lost opportunities to the cost of carrying management debt. And since revenue far exceeds the costs of generating it, the most significant costs of management debt are often lost revenue.
- Yet, we rarely include lost revenue opportunities in the cost of decisions, especially decisions not to do something. Lost revenues seem so debatable, so flimsy, and so speculative. To break this habit, focus not only on unexploited opportunities for new revenue, but also on declining market share and lost customers.
- Stagnation is surprisingly expensive
- An often-neglected source of interest on management debt is the cost of doing nothing. For instance, if we must terminate people who've stagnated because we failed to keep our technology current, the costs of those terminations, and the consequent loss of organizational knowledge, trace directly to the decision to continue using outdated technology.
- Accurate accounting for stagnation requires not only recognition of the recurring charges for the management debt, but also accrual of the cost of ultimately dealing with the stagnation.
The decision not to account for management debt does itself incur management debt, because it distorts the organization's view of its available resources. Does your organization have an accurate accounting of its resources? First in this series Top Next Issue
Are your projects always (or almost always) late and over budget? Are your project teams plagued by turnover, burnout, and high defect rates? Turn your culture around. Read 52 Tips for Leaders of Project-Oriented Organizations, filled with tips and techniques for organizational leaders. Order Now!
Your comments are welcomeWould you like to see your comments posted here? rbrenrDUDwWaUxOAJtKFRner@ChaclWPJpPZohNvtYLEJoCanyon.comSend me your comments by email, or by Web form.
About Point Lookout
Thank you for reading this article. I hope you enjoyed it and found it useful, and that you'll consider recommending it to a friend.
Support Point Lookout by joining the Friends of Point Lookout, as an individual or as an organization.
Do you face a complex interpersonal situation? Send it in, anonymously if you like, and I'll give you my two cents.
More articles on Personal, Team, and Organizational Effectiveness:
- Make Space for Serendipity
- Serendipity in project management is rare, in part, because we're under too much pressure to see it.
If we can reduce the pressure, wonderful things happen.
- Games for Meetings: II
- We spend a lot of time and emotional energy in meetings, much of it engaged in any of dozens of ritualized
games. Here's Part II of a little catalog of some of our favorites, and what we could do about them.
- Enjoy Every Part of the Clam
- Age discrimination runs deep, well beyond the hiring decision. When we value each other on the basis
of age, we can deprive ourselves and our companies of the treasures we all have to offer.
- Mitigating Outsourcing Risks: I
- Outsourcing internal processes modifies the usual risk configuration of those processes, but it also
creates a special class of risks that are peculiar to the outsourcing relationship. What are some of
those risks and what can we do about them?
- Still More Things I've Learned Along the Way
- When I have an important insight, or when I'm taught a lesson, I write it down. Here's another batch
from my personal collection.
Forthcoming issues of Point Lookout
- Coming December 11: The Rhyme-as-Reason Effect
- When we speak or write, the phrases we use have both form and meaning. Although we usually think of form and meaning as distinct, we tend to assess as more meaningful and valid those phrases that are more beautifully formed. The rhyme-as-reason effect causes us to confuse the validity of a phrase with its aesthetics. Available here and by RSS on December 11.
- And on December 18: The Trap of Beautiful Language
- As we assess the validity of others' statements, we risk making a characteristically human error — we confuse the beauty of their language with the reliability of its meaning. We're easily thrown off by alliteration, anaphora, epistrophe, and chiasmus. Available here and by RSS on December 18.
I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenrDUDwWaUxOAJtKFRner@ChaclWPJpPZohNvtYLEJoCanyon.com or (650) 787-6475, or toll-free in the continental US at (866) 378-5470.
Get the ebook!
Past issues of Point Lookout are available in six ebooks:
- Get 2001-2 in Geese Don't Land on Twigs (PDF, )
- Get 2003-4 in Why Dogs Wag (PDF, )
- Get 2005-6 in Loopy Things We Do (PDF, )
- Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, )
- Get 2009-10 in The Questions Not Asked (PDF, )
- Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, )
Are you a writer, editor or publisher on deadline? Are you looking for an article that will get people talking and get compliments flying your way? You can have 500 words in your inbox in one hour. License any article from this Web site. More info
- The Power Affect: How We Express Our Personal Power
Many people who possess real organizational power have a characteristic demeanor. It's the way they project their presence. I call this the power affect. Some people — call them power pretenders — adopt the power affect well before they attain significant organizational power. Unfortunately for their colleagues, and for their organizations, power pretenders can attain organizational power out of proportion to their merit or abilities. Understanding the power affect is therefore important for anyone who aims to attain power, or anyone who works with power pretenders. Read more about this program.