Intrest Free (Technical) Debt Is Risky

Earlier today I read a post from Javier Salado that asked the question “If the interest rate is 0%, do you want to pay back your debt?”. In this case Javier was referring to technical debt, but I felt like the conclusion he reached was the same mis-understanding that people apply to regular debt. Let me back up a bit. In Javier’s post, he lay’s out the following scenario:

“Imagine you convince a bank (not likely) to grant you a loan with 0% interest rate until the end of time, would you pay back? I wouldn’t. It’s free money. Who doesn’t like free money?”

He then goes on to apply this thinking to technical debt.

“You have an application with, let’s say, $1,000,000 measured technical debt. It was developed 10 years ago when your organization didn’t have a fixed quality model nor coding standards for the particular technologies involved, hence the debt. Overtime, the application has been steadily provided useful functionality to users and what they have to say about it is mainly good. You have adapted to your organization’s new quality process, the maintenance cost is reasonable and any changes you have to make have an expected time-to-market that allows business growth. We could say the interest rate on your debt is close to 0%, why should I invest in reducing the debt?”

I think the answer to both questions is yes, and he makes the same mistake a lot of people do when it comes to taking on debt (technical or otherwise). Calculating the cost of debt cannot be based just on the interest rate alone, you must also factor in risk. In financial transactions, even a debt with 0% interest likely has some form of payment terms and collateral. (One might argue that Javier really meant a loan from a bank that was 0% interest, required no collateral, and had no terms for re-payment. I’d argue that’s a gift, not a loan.) It turns out, 0% interest loans aren’t actually just make believe. A simple example, which is actually a real world example, would be a 0% interest car loan. While this looks great from an interest point of view, it’s not so good from a risk assessment point of view; if you get into an accident, you now owe a bunch of money and no longer have the collateral to pay it off. It’s a double whammy if you figure you might have to deal with fallout from the accident itself.

So the question is, does risk assessment carry over to the technical debt metaphor? I believe it does. In most cases technical debt comes from legacy code, which means the number of people who can work on it are all folks who have been around a long time. In most cases, rather than teach new people how to develop on the legacy system, you just have the “old timers” deal with it when needed. But of course, this is risky, because as time goes by, you probably have fewer and fewer people who can serve in this role. This is a risk. You also have to be aware that, while you have the large amount of managed technical debt, it’s always possible that some new, unforeseen event could occur that changes the dynamic of things. Perhaps a large client / market opens up to you, or some similar opportunity. Perhaps a merger with a new company would be proposed. You now have to re-evaluate your technical situation, and in many cases that technical debt may come back to bite you.

In the end, I don’t think Javier was way off base with his recommendations, which was essentially to follow Elizabeth Naramore’s “D.E.B.T.” system (pdf/slides), to measure your debt and then decide how and what needs to be paid off. But I think it’s important to remember that once you have identified your debt, even if the “interest” on that debt is still low, it does represent risk within your organization (or your personal finances), and you would be best to eliminate as much of it as you can.