While tech debt might seem like an abstract concept, its impact on your bottom line is very real.
Just like financial debt, tech debt accrues "interest" in the form of increased costs, reduced efficiency, and lost opportunities.
It means taking shortcuts in your work that seem to save time now, but end up costing you more time and effort to fix later.
But how do you actually calculate the cost of this technical debt?
It's not as simple as adding up a few numbers, but by understanding the key factors involved, you can gain a clearer picture of the financial burden your tech debt is placing on your organization.
When quantifying tech debt, the below figures are estimates for illustrative purposes.
Actual costs can vary widely depending on factors like company size and revenue, industry and regulatory environment, location, specific technologies and systems involved, and severity and duration of tech debt.
Context: A small fintech startup has limited funding and a small development team. The pressure to launch quickly led to shortcuts that ultimately resulted in a costly and time-consuming remediation process.
Activity: A fintech startup rushes the launch of a new peer-to-peer payment app to beat competitors to market, skipping critical security testing and user experience optimization.
$100,000: Post-launch bug fixes (developers spending 2 weeks fixing critical bugs and performance issues).
$50,000: Increased customer support calls and complaints due to a confusing user interface and unresolved bugs.
$75,000: Loss of potential users due to negative app store reviews and user churn caused by a poor initial experience.
$25,000: Emergency security patch development and deployment after a minor security vulnerability is exploited.
Total: $250,000
Context: A large bank with a team of 15 developers maintaining a complex core banking system.
Activity: Writing messy, undocumented code for a core banking system to save time in the short term.
$100,000: Developer time spent deciphering and refactoring code (3 developers spending 2 months each).
$50,000: Delays in implementing new features due to code complexity.
Total: $150,000
Context: A large fintech company with a significant customer base and sensitive customer data
Activity: Delaying security patches and updates for a customer data platform to avoid potential downtime.
$750,000: Incident response and data recovery following a data breach.
$500,000: Legal fees and regulatory fines.
$1,000,000: Lost revenue due to customer churn and damage to brand reputation.
Total: $2,250,000
Context: A payment processing company with a moderate transaction volume and limited IT budget.
Activity: Sticking with an outdated payment processing system to avoid the upfront cost of modernization.
$150,000: Lost productivity due to manual processes and system inefficiencies (10 employees wasting 30 minutes per day each).
$75,000: Difficulty integrating with new technologies, limiting innovation and new product development.
$125,000: Potential loss of customers to competitors offering more modern and convenient payment solutions.
Total: $350,000
Context: A mid-sized fintech company with a large volume of customer data used for analytics and marketing campaigns.
Activity: Failing to establish clear data governance policies and neglecting data quality in a customer analytics database.
$75,000: Wasted resources due to data inconsistencies and inaccurate reporting (analysts spending extra time cleaning and validating data).
$50,000: Difficulty extracting meaningful insights from data for personalized marketing and customer segmentation.
Total: $125,000
To get a comprehensive estimate of your tech debt cost, you need to consider all these factors. This might involve:
While calculating the exact cost of tech debt can be challenging, it's crucial to recognize that it's a real expense with tangible consequences.
By understanding the factors that contribute to this cost, you can make informed decisions about prioritizing tech debt remediation and investing in long-term technology health. Just like managing your financial debt, proactively addressing your tech debt can save you significant money, time, and headaches down the line.
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