Mental Accounting and Technical Debt

Some organizations have made real progress in controlling and retiring their accumulated technical debt. Many others have struggled, finding the goal elusive at best. And still others have failed even to make a start on the project. It's just too much of a challenge. Although there has been some progress, the goal of retiring existing technical debt and controlling further accumulation seems to be able to resist most technical approaches.

The fundamental question could be this: Why do we have such difficulty allocating resources to the twin problems of retiring our existing technical debt, and managing new technical debt formation? Perhaps the roots of these problems lie not within the technologies we use, but within the users of the technologies — within us.

If some of the causes of our resource allocation problems have roots in human psychology, then the field of behavioral economics might have some valuable lessons that could apply. And mental accounting is one fruitful line of research that could be relevant.

As a preliminary, let's consider a specific definition of technical debt. Your definition might differ, but here's mine:

Technical debt is any technological element that contributes, through its existence or through its absence, to lower productivity or to a higher probability of defects during development, maintenance, or enhancement efforts, or which depresses velocity in some other way.

Technical debt is therefore something we would like to revise, repair, replace, rewrite, create, or re-engineer for sound engineering reasons. It can be found in — or it can be missing from — software, hardware, processes, procedures, practices, or any associated artifact, acquired by the enterprise or created within it.

With that background, let's now turn to what the research in mental accounting has to offer.

Mental accounting

Research in mental accounting has developed a number of models of behavior relative to resource allocation and acquisition. Although the work is focused almost exclusively on consumer behavior, the analogies to organizational resource management are clear enough to support conjectures in special cases such as technical debt management.

Setting aside the models of mental accounting, conventional economic theory predicts that organizational decision makers will always behave rationally. They'll make decisions that maximize the present value of resource streams, and minimize the present value of expense streams. That decision makers don't behave in this way is clear, especially in the field of technical debt management. So a natural question arises: Can we amend the principles of economics to obtain predictions that more closely resemble actual decision maker behavior?

Mental accounting offers a number of such possible amendments. In this post, I explore just two that happen to be related: pain of paying, and the credit card effect.

Pain of paying

Pain of Research in mental accounting has developed
a number of models of behavior relative to
resource allocation and acquisitionpaying is the negative emotional experience that occurs when we actually pay for goods or services. Researchers have found that consumers who experience a higher level of pain of paying tend to carry lower levels of debt than do consumers who experience lower levels of pain of paying. [Rick 2008]

It's reasonable to suppose that knowledge of the financial consequences of acquiring new technical debt would cause decision-makers to experience the analog of consumer's pain of paying. Applying the concept of pain of paying to organizational technical debt, we can surmise that organizations would tend to carry lower levels of technical debt if they accurately estimate the effort required to avoid incurring new technical debt. Similarly, they might carry lower levels of technical debt if they more accurately estimate the decreases in productivity that result from carrying technical debt.

The credit card effect

Researchers in mental accounting have observed what has come to be called the credit card effect. [Prelec 2001] They have observed that consumers are more willing to pay for a good or service if they can pay for it using a credit card rather than cash. They have also found that restaurant tips are larger when the consumer pays using a credit card.

Experimental evidence suggests that the credit card effect is due to transaction decoupling — a temporal separation between the acquisition event and the payment event. This separation enables enjoyment of the good as if it were free in the context of the acquisition event. In the context of the payment event, the pain of payment can be somewhat alleviated by the passage of time, and the fact that the payment for the good might be only a small part of the balance due, which can include payment for many other acquisitions.

I suspect that this effect is part of the reason why retailers are so happy to offer gift cards. Gift cards offer even greater separation between the acquisition event and the payment event — not only temporal, but also personal.

In the organizational context, technical debt offers something analogous to consumer credit card debt. Payment for goods acquired by incurring technical debt might never happen unless the organization takes a decision to retire the debt. Moreover, the "interest" payments on technical debt occur, for the most part, in the form of depressed productivity and schedule slippage. Because neither of these effects appear anywhere in the organizational chart of accounts, decision makers don't experience a pain of payment for interest charges on technical debt.

Last words

To make progress in controlling technical debt, we might consider finding ways to cause decision makers to experience the pain of paying. And it might be helpful to make the carrying charges for technical debt more visible. Technical debt will likely remain difficult to manage as long as the penalties for incurring technical debt are invisible or nil.  Top    Next Issue

Projects never go quite as planned. We expect that, but we don't expect disaster. How can we get better at spotting disaster when there's still time to prevent it? How to Spot a Troubled Project Before the Trouble Starts is filled with tips for executives, senior managers, managers of project managers, and sponsors of projects in project-oriented organizations. It helps readers learn the subtle cues that indicate that a project is at risk for wreckage in time to do something about it. It's an ebook, but it's about 15% larger than "Who Moved My Cheese?" Just . Order Now! .

Footnotes

Your comments are welcome

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.

This article in its entirety was written by a human being. No machine intelligence was involved in any way.

Point Lookout is a free weekly email newsletter. Browse the archive of past issues. Subscribe for free.

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.

Related articles

More articles on Cognitive Biases at Work:

Bullet Point Madness: II

Decision makers in many organizations commonly demand briefings in the form of a series of bullet points or a series of series of bullet points. Briefers who combine this format with a variety of persuasion techniques can mislead decision makers, guiding them into making poor decisions.

Cognitive Biases at Work

Cognitive biases can lead us to misunderstand situations, overlook options, and make decisions we regret. The patterns of thinking that lead to cognitive biases provide speed and economy advantages, but we must manage the risks that come along with them.

Some Perils of Reverse Scheduling

Especially when time is tight, project sponsors sometimes ask their project managers to produce "reverse schedules." They want to know what would have to be done by when to complete their projects "on time." It's a risky process that produces aggressive schedules.

Lessons Not Learned: I

The planning fallacy is a cognitive bias that causes us to underestimate the cost and effort involved in projects large and small. Mitigating its effects requires understanding how we go wrong when we plan projects by referencing our own past experience.

Additive bias…or Not: II

Additive bias is a cognitive bias that many believe contributes to bloat of commercial products. When we change products to make them more capable, additive bias might not play a role, because economic considerations sometimes favor additive approaches.

See also Cognitive Biases at Work and Cognitive Biases at Work for more related articles.

Forthcoming issues of Point Lookout

Coming January 15: The Storming Puzzle: Patterns and Antipatterns

Tuckman's model of small group development, best known as "Forming-Storming-Norming-Performing," applies to today's task-oriented work groups, if we understand the six principles that govern transitions from one stage to another. Here are some examples. Available here and by RSS on January 15.

And on January 22: Storming: Obstacle or Pathway?

The Storming stage of Tuckman's model of small group development is widely misunderstood. Fighting the storms, denying they exist, or bypassing them doesn't work. Letting them blow themselves out in a somewhat-controlled manner is the path to Norming and Performing. Available here and by RSS on January 22.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenpRoKwMoEOoFkeLydner@ChacVEWwCCkLQYKCZHjFoCanyon.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 500-1000 words in your inbox in one hour. License any article from this Web site. More info