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As a CFO, you have the responsibility to formulate your company’s investment strategy. One area of investment most critical to any organization is technology. While the CFO can rely on the CIO to understand the technology, every CFO must have a full understanding of their company’s technology debt to effectively guide the organization to financial success.

Where is the Technical Debt?

The first place to see obvious technical debt is within your company’s software development processes. Consider this debt the work required before a particular job can be considered complete or proper. If the debt is not repaid it will continue accumulating interest, making it hard to implement changes in the future.  An example would be when a company pushes to get a product into market as soon as possible to gain market share or defend against a competitor. In cases like this, it makes sense to launch the product knowing that everything isn’t exactly as it should be but it’s enough to either gain market share or stop competitive encroachment.

The second, and most expensive, type of technology debt is with the software, hardware, support, and development costs used to support a system(s) the company knows are end of life. These are the system(s) that should have been replaced, and written off as a sunk cost a long time ago. As a CFO, you can identify these systems by all of the time consuming, high-cost projects with the sole business value of staying in business. Another way to identify these systems is by identifying the projects that drastically fall short of the benefits promised in their business cases. These cost overruns are due to the costs and/or project queue required by these systems in order to make the project a success.

Good Technology Debt vs. Bad Technology Debt

Just as in finance, good technology debt is that which increases your net worth and/or helps you to generate value, as well as manage your finances more effectively. Going to market with a minimally viable product to gain market share, knowing that your product roadmap will pay off its debt through the remainder of the lifecycle while continuing to generate more revenue is a good thing. The key is to ensure that, just as with regular debt, you have a plan in place to pay it off in order to maintain your strong financial/technical position.

In contrast, bad technology debt is that which does not increase revenue or market share and/or has no lasting value on decreasing costs or improving your company’s ability to go to market faster on future endeavors. Bad technology debt can also be any type of project or system that has extremely high support costs and/or project queues going forward that will consume your technology budget and resources. Chances are that right now you have a multi-million dollar project in front of you where the sole purpose is to move an on-premise system from an “end-of-life” version to a currently supported version. Due to your customizations and integrations, this is probably a multi-year project that, when completed, will be one to two years from being “end-of-life” again and your company and your customers will be no better off for the effort. That is bad technology debt. You will never get that investment back and in no way will it impact to your company’s future success.

Having this insight about technology debt will not only allow you as the CFO to manage your current budgets more soundly, but also allow you to work strategically with your CEO and CIO on how best to invest in your company’s future.

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