In Plain Sight

Start in the upper right by learning about the architecture of the organization; you’ll be surprised at what you stumble upon.

In Plain Sight
Capital Thinking | In Plain Sight

Capital Thinking  •  Issue #499  •  View online

The term “technical debt” comes from the realm of software development.

Simplistically, it is the gap between the optimal state of a program or system and where it is now.

-Tom Brakke

technical debt

Tom Brakke | The Research Puzzle:

I am always on the lookout for new concepts to use in the analysis of organizations.

Often they originate in other disciplines, but can be applied or adapted for use in my consulting work and training sessions (such as my due diligence workshops, the next of which was just announced).

In the case of “technical debt,” much of the work was done for me by Mawer Investment Management. A November podcast from the firm explores technical debt and its implications for both the investment and operating decisions of asset management firms.

In this posting, I also link it more broadly to other kinds of organizations in the investment world.

To start, check out the graphic (at the top of the page) from CIO New Zealand.

Ignore for a minute the words inside the grid.

In evaluating an organization (whether from the inside or the outside), a basic goal is to identify the things that add and subtract value, knowing that some are easy to see and some are hidden.

The term “technical debt” comes from the realm of software development.

Simplistically, it is the gap between the optimal state of a program or system and where it is now. (A tidy overview of what it is and its history comes from Agile Alliance).

Appropriately, the Mawer podcast starts with a discussion with Dwight Pratt, who works in its business technology group.

Pratt provides an overview and then talks about three kinds of technical debt: deliberate (such as when corners are cut to bring a software release to market, in expectation of improving it later), accidental, and “bit rot,” the complexity that results from lots of incremental changes, often made without an understanding of the big picture.

Whatever the source, as with financial debt, if it becomes overwhelming, technical debt can pose significant operational and cultural challenges to an organization.

The second part of the podcast features Karan Phadke, an equity analyst at Mawer, who discusses the implications for analyzing companies and provides examples of how technical debt left unaddressed can result in significant financial impact down the road.

He discusses the various metrics and investigative methods Mawer uses to try to estimate the technical debt of companies it evaluates.

There are also references to “The Lab,” an internal Mawer team that helps investment decision makers try to come up with new tools and techniques to aid the analytical process.

That is a good example of how the notion of technical debt relates to something that you might call analytical debt.

Time doesn’t stop and the investment markets are always grinding away at what works; getting better for tomorrow means assessing the interconnected technical and analytical debts and addressing them today.

When evaluating an organization, I find that its technical structure can give important clues about how information flows and where potential problems might be.

The notion of technical debt adds another layer (and another line of questioning) to that.

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the research puzzle : a blog by tom brakke

*Featured graphic by CIO New Zealand