Forbes Magazine recently published an article that identified technology debt as a significant and real challenge for all businesses. Technology debt is a concept used to highlight the cost of addressing all technology modernization gaps in a business. This concept becomes a more of a reality as businesses seek to drive business valuation and/or seek private equity funding or acquisition but has a tangible impact regardless.
According to a study conducted by McKinsey, IT budgets are not keeping pace with the growing IT demands, security threats, and compliance requirements which are being pressed into small businesses at an exponential clip. And the larger the technology debt, the risk and exposure for that business grows too. Quantifying tech debt can be a challenging process. While fixed-asset borrowing is repaid with interest over time, tech debt grows silently off the books...so seldomly does a company that gets behind, truly make up the budget gap in the following years. They typically just reallocate the same budget to the highest priority each year while certain areas of the IT initiative get left behind.
To keep things simple, this concept of technology debt should identify underfunded technology investments as impaired assets. Once impaired assets are identified, they are to be fixed, replaced, written down, or abandoned. There are also unfunded technology initiatives that are comparable to contingent liabilities. Underfunded and unaddressed tech issues result in uninsured cyber breaches, service failures, and costly downtime.
To quantify these technology debts, you just take the sum of the impairments and liabilities. Once those are identified, the odds that a business will properly fund those initiatives with the correct priority is much more likely. A due diligence approach shifts the mentality from ‘how much money do I have to spend?” over to, “can we strategically afford the consequences of not investing?”
Carrying technology debt is a competitive disadvantage and can impede business growth and profitability so business owners must be cognizant of their technology gaps. The good news is that with some help and attention, technology debt can be identified, measured, and managed. From there a business can regain control of unidentified risk in their business and focus technology resources on creating value for the business and customers.
If you need assistance identifying, quantifying, or prioritizing your technology debt, call Connecting Point and we can help.