Think of tech debt like a zero-coupon bond (or PIK loan)
Ward Cunningham’s analogy between technical and financial debt isn’t perfect — analogies rarely are — but I’m a recent convert to “tech debt metaphor maximalism"
Tech debt is hard to define, difficult to categorise and a struggle to prioritise, but pushing the analogy with financial debt further can improve a team’s understanding of its situation and help distinguish between the different types of debt on its “balance sheet”.
One reason the metaphor of paying interest on technical debt breaks down, as Martin Fowler has noted, is because financial interest payments accrue through the passage of time, whereas...
“If I have a terrible area of the code base, one that's a nightmare to change, it's not a problem if I don't have to modify it. I only trigger an interest payment when I have to work with that part of the software.”
But what if we extend the debt metaphor to make it more specific?
Zero sums
There are forms of financial debt that don’t (or don’t always) require interest payments at set intervals.
One of these is the zero-coupon bond. These are issued to investors at a price below (or at a discount to) their face value. The borrower doesn’t pay interest, but when the bonds mature it must repay them at their full face value.
By analogy, a team of software developers could aim to “issue” discounted technical debt, such that while the face-value amount is out there waiting to be repaid, in the meantime the team expects not to worry about interest payments.
Just like zero-coupon financial debt, this technical debt could have a short intended lifespan of one, three, or six months comparable to the Treasury bills that governments issue regularly. Alternatively, the team might assess the debt to have a much longer maturity of 5, 10 or more years akin to Treasury bonds, though that probably means they’ve either over-engineered the solution, or rather irresponsibly assumed it will become someone else’s problem.
PIK your battles
Another way of deferring interest payments – or being able to choose when to make them – is to think of technical debt as a “PIK loan”. Often used by private-equity firms when acquiring a company through a leveraged buy-out, payment-in-kind loans have an associated interest rate, but the interest is either added to the original principal amount or paid to investors in the form of additional loan notes, rather than in cash.
A variant called a PIK “toggle” gives the borrower the choice between making interest payments in cash or in kind, which is why they’re sometimes called pay-if-you-want loans. Or “pay-if-you-can” when a company is struggling.
By analogy, a development team could choose to make the cash interest payment and address some of the accruing interest on the technical debt, or defer payment until later, depending on the circumstances.
Software teams that take on technical debt prudently and deliberately are hopefully doing so for the benefit of learning, validating or releasing early, on the grounds that the “interest payments” will turn out to be lower than the value that comes from shipping sooner.
Zero-coupon bonds and PIK loans are both ways for a borrower to further manage cash flow by deferring interest payments, thereby keeping back funds for other operations.
The principal amount of a zero-coupon bond or a PIK loan can be repaid early through a tender offer. This is when a borrower proposes to redeem all or part of the debt using cash or, more commonly, through a “refinancing” funded by new debt with a longer maturity and (preferably) a lower interest rate.
If the situation allows or necessitates it, software teams can decide to pay back technical debt before its planned maturity, or refinance it to give themselves more breathing space.
One thing a team can’t do is plan to issue discounted tech debt in neat increments via regular auctions (like the UK’s Debt Management Office) and they also won’t be able to specify upfront the exact “face value” they’ll need to repay.
So neither of these “maximalist” analogies is perfect either, but they’re still worth reasoning with.
Recommended stuff
Tech debt metaphor maximalism by Avery Pennarun
A robust exchange of views on Hacker News
Stop saying “technical debt”, an alternative viewpoint from Chelsea Troy
Martin Fowler on technical debt and the technical debt quadrant
The Debt Metaphor in Ward Cunningham’s own words (YouTube)
Next time…
If you’re taking on technical debt by design, who exactly are you borrowing from?