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What is Technical Debt and its Associated Cost Implications?

A deep dive into the multifaceted cost implications of technical debt, and how overlooking the tech debt can break your bank and sap your momentum.
Technical debt

Silicon Valley is the only jungle where you will find an Elephant sprinting like a Cheetah. Because the rule of the jungle is to “Move fast and break things. Unless you are breaking things, you’re not moving fast”. 

At the core, the above rule/motto evangelized by Zuckerberg, the founder of Facebook, is not much different than the first agile principle i.e., continuous innovation and value delivery. Still, the topic of ‘moving fast’ often radically divides the tech community into two halves i.e., for and against. However, none can deny that agility, adaptability, and flexibility are the key enablers of innovation and growth for both, the Elephants (large enterprises) and the Cheetahs (startups). 

In fact, it’s often fascinating and admirable to see companies innovate & scale at breakneck speed. But in the pursuit to be the next Lion King (market leader), make sure you do not overlook technical debt. Or else, forget about Elephant & Cheetah, you may end up as a Rabbit losing the race to a Tortoise.

Read this insight to avoid any such unfortunate outcomes, and understand the cost implications of not acknowledging and addressing the technical debt proactively.

What is Technical Debt?

We've mentioned technical debt is like a credit card, but what exactly does that mean? In software development, technical debt refers to the shortcuts, workarounds, or inelegant solutions taken to meet deadlines or overcome temporary hurdles. These choices might seem like a quick win initially, but they often come at a cost.

Here's how the analogy breaks down:

  • Taking on Debt: The "debt" is incurred when we choose a faster, but less ideal solution. This could be anything from messy code that's hard to understand to skipping crucial design steps.
  • Interest: Just like financial debt accumulates interest over time, technical debt grows as well. The longer you wait to address these shortcuts, the harder they become to fix. Bugs become more likely, adding to development time. Adding new features on top of shaky foundations becomes increasingly complex.
  • Payment: The good news is, technical debt can be addressed! This "payment" comes in the form of refactoring - rewriting code to be cleaner, more maintainable, and aligned with best practices.

In the next section, we'll explore some of the common ways technical debt arises in software projects.

What are The Types of Technical Debt? 

Technical debt isn't a monolithic issue. It manifests in various forms, each impacting your codebase differently. Let's explore some common types:

  1. Intentional Debt: This is a calculated decision to prioritize speed over perfection. Like building a Minimum Viable Product (MVP), you might accept some technical shortcomings to get a product to market quickly and gather user feedback. This approach carries risk, but it's a known risk that teams can track and address later.
  2. Unintentional Debt: This arises from shortcuts, misunderstandings, or lack of expertise. Imagine a developer facing a tight deadline - they might cut corners on testing or write less-than-ideal code. While unintentional, this debt can snowball if left unchecked.
  3. Environmental Debt: This debt accumulates due to external factors beyond your initial control. Operating system updates, library upgrades, or even changes within your own codebase can introduce incompatibilities or require adjustments.

Technical Debt Quadrants Types & Associated Cost Implications

Technical Debt Quadrants

Technical debt is inevitable, no matter how small or large the project is. However, the severity of cost implications and the underlying cause could be different. The nature and severity could be understood using the famous technical debt quadrant by Martin Flower, where the author segmented tech debt into four quadrants:

1. Deliberate & Prudent Technical Debt

The 1st quadrant is where the team knows the risks that they are taking, the associated inherent reward, and the debt they will have to pay in the long run. These are conscious decisions around code and barely introduce any significant technical debt with high payoffs

This sort of technical debt can often be found in the less critical components of a software system, the components which are seldom used by the users, or touched by the developers. The cost implications of such debts are negligible, and teams often escape paying off these debts. 

An example could be non-critical application features like a dysfunctional scroll icon that doesn’t do anything on click.

2. Deliberate & Reckless Technical Debt

The 2nd quadrant covers the types of technical debt where the team deliberately ends up introducing high-interest debts. A major cause of these debts is the ignorant attitude of the capable development team towards following the best software development practices/principles (reckless technical debt). 

Often, teams who introduce deliberate technical debts estimate the perks of immediate release worth paying the high debt payoffs down the line. While deliberate & prudent technical debt is risky too but manageable, the cost implications of deliberate & reckless debts are crippling enough to make even the mightiest of organizations kneel down.

For example, inadequate input validation or lack of proper authorization checks during the checkout process in an ecommerce app could be catastrophic if hackers manipulate cart prices, bypass payment authorization, and exploit vulnerabilities for unethical advantages.

3. Inadvertent & Reckless Technical Debt

The 3rd quadrant encompasses technical debts that are unintentional. These sort of debts gets introduced due to a lack of awareness or technical inexperience of the engineering teams. The cost implications of inadvertent & reckless technical debts could be equally fatal as deliberate & reckless debt.

For example, a social invitation app that limits you to invite only 50 people every week to follow you. But if you merge two of your social accounts then you’re able to invite an unlimited number of people per week. This sort of bug is mainly because of the complexity of implementation and arises due to lack of proper technical requirements document. Now, if the number of invitations was your revenue model, your business might be staring at staggering opportunity loss. But if it was just an add-on feature, the losses are capped too.

4. Inadvertent & Prudent Technical Debt

The 4th quadrant of technical debt is where the team may have unintentionally introduced technical debt that could be taxing for the maintenance teams, and the organization in general. These debts are often identified late in the software development lifecycle process. By late, we mean, the team realizes that they have been developing the software the wrong way, and the best way to do this is radically different. The cost implications here are such that teams are often expected to rip off the entire system under development and build it again from scratch.  

An example of this is developing a custom edTech LMS, only to realize later that you could have used an open-source edTech framework Moodle to build your LMS.

How to Identify Technical Debt?

Does your once-agile codebase now feel sluggish and cumbersome? This might be a sign of technical debt rearing its head. Just like a house accumulating maintenance issues, technical debt represents shortcuts or design choices taken to meet deadlines that can lead to problems down the road. Let's explore some telltale signs that technical debt might be lurking:

1. Decreased Development Speed

As technical debt accumulates, making changes to the code becomes more complex and time-consuming. Developers might spend more time deciphering spaghetti code than adding new features.

2. Increased Bugs and Errors

Technical debt often leads to buggy and unreliable software. These bugs can be frustrating for users and require additional resources to fix.

3. Poor Code Quality

Code smells like long functions, duplicated code, and lack of documentation are all signs of technical debt. These code characteristics make the codebase harder to understand and maintain.

4. Slow Unit Test Performance

If your unit tests are slow to run, it could be a sign that the code is poorly designed or has hidden complexities.

5. User Complaints

Frustrated users complaining about performance issues, crashes, or unexpected behavior can be a red flag for technical debt.

In addition to these indicators, there are proactive measures you can take to identify technical debt:

  • Code Reviews: Regularly scheduled code reviews by experienced developers can help identify code smells and potential problems early on.
  • Static Code Analysis Tools: These tools can automatically scan code for common issues like code smells, potential security vulnerabilities, and coding standard violations.
  • Metrics Tracking: Tracking metrics like code coverage from unit tests, number of bugs, and time spent fixing bugs can provide valuable insights into the overall code health.

By being vigilant and using these techniques, you can identify technical debt before it becomes a major issue.

Unveiling How Rising Technical Debt Hits Your Bottom-line, and The Price You Pay

Irrespective of the quadrant it falls in, technical debt is a costly gamble. It can break your bank and even make you file for bankruptcy. No kidding, we are dead serious. The cost implications of technical debt are multifaceted and can be felt across the organization, both horizontally and vertically. Here is how it hits your bottom line:

1. Staggering Financial Burden

Financial Burden due to Technical Debt

As per a survey by McKinsey, companies are allocating 10-20% of their new project budget toward technical debt.

Technical debt, aka code debt, is often an outcome of shortcuts and tradeoffs development teams make to meet deadlines. Sometimes, it is also because of the negligence, inexperience, incompetence, and careless attitude of software developers and other project stakeholders. 

Engineering managers often greenlight an inefficient solution because, in the short run, it seems less taxing financially and technically. 

But in the long run, as the debt accumulates, the complexity of the software systems becomes tightly coupled. And the costs incurred towards the maintenance and upgradation of tightly-coupled solutions i.e., technical debt repayment costs often drain the finance team of the budget. 

The implied costs can be in the form of infrastructure upgradation, re-platforming, application code refactoring, patching critical vulnerabilities, or extra investment that goes into customizing an off-the-shelf third-party solution to effectively integrate it with your tech stack.

2. Loss of Developer Productivity, Increased Cycle Time, and Plummeting Release Velocity

Loss of Developer Productivity due to technical debt

A lot of times, talented developers get unpleasant surprises. Especially, when they work on the extensibility of pre-existing software, and are developing new features for it. These surprises are nothing but the technical debt that creeps up on your SDLC process, which could be:

  • Bugs
  • Poorly implemented non-modular software components
  • Conflicting code blocks
  • Inconsistency in data models & data access
  • Non-compliance of the code with relevant geographical, legal, and industrial regulations & standards. 

In general, every second a developer spends dealing with tech debt results in loss of developer enthusiasm, and a loss of developer time that could have been spent writing the application code and developing new innovative features. 

To effectively minimize the risks associated with error-prone code, the development teams put extra effort toward software testing to improve the test code coverage. And because the developer is busy modernizing/patching/testing the legacy code, it slows down the value release velocity of the development teams. In fact, as per reports, an average developer spends 17.3 hours per week dealing with bad code and tech debt, which accounts for $85 Billion in annual losses.

3. Opportunity loss

A non-quantifiable implication of technical debt is opportunity loss, aka loss of revenue and customers. 

Just like the sand accumulating in an hourglass, 60% of organizations said that their technical debt has compounded over the last three years. And rise in technical debt gradually robs organizations of their ability to adapt, innovate, and scale. Hence, projects plagued with technical debt are often late when it comes to releasing new features, and miss to grab emerging market opportunities or gain first-mover advantage. 

This triggers a domino effect, where customer churn is high, as your competitors gain an unfair advantage over you and are better positioned to attract new customers. Not just that, they also improve existing customer loyalty with continuous value delivery and delight customers with breakthrough innovations, new features, and experiences.

4. Talent loss

A non-empirical cost implication of technical debt is talent loss, aka employee churn or turnover. The frustrating experience of maintaining and fixing the legacy code can take a toll on your developer’s well-being, and may even cause burnout. Just like customers, unhappy employees too may bid adieu to your organization and look out for better opportunities. This could be a cost-intensive affair for you, as on average it takes an average employer USD 4000/- and 24 days to replace an employee. The costs could be much higher if you are on the lookout for people with exquisite skills in outdated or less popular technologies like embedded systems programming.

Put a Check on the TCO

Gartner says, “Through 2023, I&O leaders who actively manage and reduce technical debt will achieve at least 50% faster service delivery times to the business”. 

Besides, as discussed above, inadvertent ignorance of the looming cost of technical debt could clog your growth gears and bring your organization to a screeching halt. So, engage in periodic/continuous code reviews, look out for code smells, and track performance-related engineering KPIs like cycle time, code churn, deployment frequency, change failure rate, mean time to restore, etcetera to spot inefficiencies in your SDLC process that could be an outcome of accruing tech debt.

Tackling Technical Debt with Hatica

Make use of Hatica, an engineering analytics platform to track the aforementioned metrics alongside 13070+ other engineering metrics to gain a comprehensive insight into your SDLC process efficacy. Also, ensure that you follow and implement emerging software development paradigms like CI/CD, Automation testing, Serverless, APIs, Microservices architecture, DevOps, GitOps, and Agile practices to command the TCO for all acquired and owned software.

Poor customer experience, dwindling brand value, high churn, loss of revenue, increased errors, bugs, and crashes, your technical infrastructure degrading to a monolithic architecture, worsening engineering metrics, and critical security vulnerabilities can all negatively influence your Total Cost of Ownership (TCO). TCO is the net expenses associated with acquiring/owning, operating, maintaining/supporting, customizing, upgrading, and replacing/abandoning a technology solution. And tech debt can significantly impact the TCO for any software application your organization uses. For sustainable momentum, you must aim to minimize the TCO, which in turn requires you to proactively acknowledge, monitor, and address your technical debt.

Keep investing in awesome developer experience, and zero tech debt!

Subscribe to the Hatica blog today to read more about unblocking developers, and boosting productivity with engineering analytics. 


1. Is Technical Debt Good or Bad?

The simple and direct answer to this is that Technical Debt is neither good nor bad.

2. What is the Difference Between Technical Debt and Bugs?

Technical or Tech Debt refers to mistakes such as poor design and architecture decisions, whereas Bugs are functional flaws.

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Table of Contents
  • What is Technical Debt?
  • What are The Types of Technical Debt? 
  • Technical Debt Quadrants Types & Associated Cost Implications
  • 1. Deliberate & Prudent Technical Debt
  • 2. Deliberate & Reckless Technical Debt
  • 3. Inadvertent & Reckless Technical Debt
  • 4. Inadvertent & Prudent Technical Debt
  • How to Identify Technical Debt?
  • 1. Decreased Development Speed
  • 2. Increased Bugs and Errors
  • 3. Poor Code Quality
  • 4. Slow Unit Test Performance
  • 5. User Complaints
  • Unveiling How Rising Technical Debt Hits Your Bottom-line, and The Price You Pay
  • 1. Staggering Financial Burden
  • 2. Loss of Developer Productivity, Increased Cycle Time, and Plummeting Release Velocity
  • 3. Opportunity loss
  • 4. Talent loss
  • Put a Check on the TCO
  • Tackling Technical Debt with Hatica
  • FAQs
  • 1. Is Technical Debt Good or Bad?
  • 2. What is the Difference Between Technical Debt and Bugs?

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