What is Technical Debt in Due Diligence?

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Due Diligence

Technical debt doesn’t always get a good rep, but it’s not black and white, either.

There are both benefits – usually early on – and consequences, which accumulate with time.

As part of their IT due diligence process, many private equity firms take a hard look at the technical debt they might incur. That means it’s just as important for portcos, as well as private and public companies, to understand what they have on their hands before engaging in a potential sale or transaction.

In addition to defining technical debt, let’s look at some examples and types, as well as the pros of cons.

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What is Technical Debt?

In software development, technical debt refers to the cost of maintaining a suboptimal or inefficient software system that was developed with an emphasis on speed, rather than quality.

It’s incurred by prioritizing quick results over a more well-designed code, which will mean more work to fix in the future, often with the objective of quick, short-term gains.

While technical debt can be a catalyst for growth, it can also create a challenges for developers and inhibit scalability.

“It allows companies to create software faster, with the understanding that they will slow down software development in the future. Companies will eventually be forced to spend more time fixing the debt than the amount of time it took them to produce the best solution at the beginning,” writes Trey Huffine of freeCodeCamp.

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Companies may eventually be forced to spend more time fixing technical debt than they did to produce the best solution in the first place. It can also be defined as the cost of reworking a solution caused by choosing an easy yet limited solution. It represents the difference between what was promised and what was delivered in a software product, including shortcuts taken to meet deadlines.

While technical debt is not always bad, many businesses use it to launch ideas quickly as a minimum viable product (MVP) and then rapidly iterate and improve them. It can, however, cost more time, money, and resources over time.

Let’s dig in to more details to better understand how technical debt works.

Technical Debt Types

Technical debt can be classified both based on the type of debt as well as how it’s incurred:

Here are some different types of tech debt:

Design Debt

Due to suboptimal design decisions and architecture choices made during the development process.

Code Debt

Arises from poorly written, inefficient or redundant code.

Documentation Debt

This happens when documentation is incomplete or outdated, which can make it difficult to maintain and update software.

Testing Debt

Due to inadequate testing practices, leading to bugs, and other software issues.

Infrastructure Debt

Results from using outdated or inefficient hardware or software, leading to slower performance and reduced productivity.

People Debt

This happens when the development team lacks skills or experience.

Process Debt

Inefficient or inadequate development processes that can lead to delays, errors, and other issues.

Here are some different ways technical debt can be incurred:

Deliberate Debt

Incurred intentionally to meet a deadline or achieve a goal.

Inadvertent Debt

From not following best practices, or failing to properly refactor code.

Prudent Debt

Technical debt that is taken on deliberately, with a plan and a clear understanding of the costs and benefits.

Reckless Debt

This arises from taking on technical debt without a clear plan or understanding of the costs and benefits. This is the opposite of prudent debt.

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Strategic Debt

Taken on to achieve a specific strategic goal, such as entering a new market or taking advantage of a business opportunity.

Tactical Debt

Taken on to achieve a specific tactical goal, such as adding a new feature or improving performance.

Bit Rot Debt

This kind of technical debt arises from neglecting to update and maintain software over time.

Inefficient Code Debt

This happens when inefficient or outdated code is used.

Unintentional Debt

This is incurred for reasons beyond the development team’s control, such as technology changes, regulatory requirements or changes in customer needs.

Technical Debt Examples

Technical debt can be found in all kinds of software development projects. The following are some examples developers may encounter.

Bugs in the Code

When developers work quickly to meet deadlines, they may make mistakes that lead to bugs. These bugs can slow down the software or make it malfunction. If they’re ignored in the interest of meeting deadlines, they’ll continue to accumulate.

Legacy Code

Code that has been written in an older version of a programming language or framework, which can make it difficult to update the software. Updating the software may require extensive code changes, which can result in significant time and effort.

Missing Documentation

Incomplete or outdated documentation can make it difficult for others to understand the code, resulting in additional work later on. Especially if those people are new to the team.

If developers don’t document their code properly, it can be challenging for others to modify later on.

Poorly Refactored Code

When developers take shortcuts to meet deadlines, they may not properly refactor, resulting in code that is not optimized, requiring more work to fix.

Ignoring Quality and Best Practices

This can result in suboptimal code that needs to be reworked, leading to performance problems.

Insufficient Testing and Documentation

Skimping on testing or documentation can make it difficult to maintain or modify the code.

Suboptimal Architecture or Design

Choosing a suboptimal architecture or design can also make for extra work as time goes on. Expect performance problems that slow down software, too.

Short-Term Thinking

Applications built only with the near future in mind eventually means consuming more resources, time, and energy maintaining and rewriting “broken code” rather than developing new ideas.

Procrastination and Compromises

Not fixing bugs when they arise will likely produce technical debt, too.

Benefits of Tech Debt

While technical debt often creates challenges, it has its benefits, too. For example, it can be used to launch an MVP, allowing businesses to gain valuable feedback from users that can be used to improve the product.

Technical debt can also help businesses remain competitive in a fast-paced environment. By prioritizing speed and agility over perfection, you can more quickly adapt to changing markets and customer needs. It can also help reduce development costs, achieving goals in less time with fewer resources.

It is, however, important to consider the long-term costs and benefits. As the technical debt accumulates, it can become increasingly difficult to maintain and update the software, leading to reduced productivity and increased development costs and security vulnerabilities. Let’s go into more detail about the potential consequences.

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Consequences of Technical Debt

The downside of technical debt can be dire, affecting not only the quality of the software but also the productivity and morale of the development team. Over time it’s increasingly costly to address.

The poor code quality can result in poor performance, bugs and maintenance issues. It can also hinder the ability to introduce new features and functionality, having a negative impact on user experience and revenue generation.

Additionally, technical debt can make it more difficult for development teams to work efficiently, as they must constantly navigate suboptimal code, taking time to understand and fix it.

Tech debt can also impact the development team’s morale. As it accumulates, developers may become demotivated, increasing turnover and making it harder to attract top talent. It can also mar a company’s reputation as negative user reviews roll in, reducing overall trust in the product or service.

It’s crucial to manage technical debt carefully and address it proactively to avoid long-term consequences.

The BluWave network is full of the best technology resources on the market for private equity, portcos, and independent and public companies.

The expertly vetted service providers ready to help know how to evaluate, utilize and address technical debt in a way that’s aligned with your business’s goals.

“The good providers will help you determine whether a company is making the most of its technology investments,” BluWave Head of Technology Houston Slatton says. “They can also say the products are out-of-date, end-of-life, have security issues, aren’t being used well, aren’t being backed up.”

Regardless of your industry, we can connect you with a niche-specific IT resource in less than one business day after an initial scoping call. Contact our research and operations team today to get started.


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