What Is the True Cost of Technical Debt in Legacy Applications?

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The term technical debt usually evokes a negative connotation. While it may sound like something to be ashamed of, in truth, every enterprise operates with some degree of technical debt. It’s really an indicator of success—you’ve grown so much, over such a long time that your technology could not keep up. Millions of lines of existing computing code undergird most enterprise operations, and sooner or later, “all code is technical debt.”

So technical debt is not inherently “bad” but it can certainly prevent enterprise businesses from achieving the agility required to maintain relevance in our evolving digital economy. As proprietary legacy systems continue to age, the modern technology stack is advancing at increasing speed. Newer platforms offer greater interoperability and help organizations leverage the full value of their business data through analytics and AI.

Technology-Driven Competitive Pressures are Building

Traditionally conservative industries, such as financial services and insurance, tend to carry a higher technical debt load. Banks and insurers rightly wish to avoid any mistakes with software systems that underpin their customers’ financial security.

Mission-critical systems are often architected on legacy platforms with proprietary codebases that expanded over multiple decades, making them difficult to replace or update. Eliminating technical debt comes with fear of significant business disruption. However, executives do recognize that customers demand a better customer experience from brands. Today, 96% of insurers believe digital ecosystems are making an impact on the industry.

Customers expect to be able to personalize the services they need. They crave a fully digital experience with 24/7/365 access to accounts, quotes, and information, as well as multiple channels of customer support. Enterprises need to employ digital, mobile, cloud, and IoT technologies to drive new value for customers. Laggards risk being outmaneuvered by innovative fintech and insurtech businesses using advanced technologies to differentiate themselves. Here are a few examples:

Legacy Platforms Can Only Be Pushed So Far

Many legacy platforms simply can’t support the types of new services that banks and insurers want to offer customers nor the new tools to empower employees.  To fully leverage the value of big data and utilize advanced technologies, enterprises need a modern tech stack.

Unfortunately, many continue to try to bolt new technologies onto outdated platforms, with limited success. After studying the state of digital transformation in the banking and insurance sector, Forrester analysts concluded that innovations were largely being built on top of outdated technology and that risk-averse cultures slowed digital transformation and got in the way of efforts to learn how to monetize data and offer greater value to customers.

When surveyed by Capita and Citrix last year, 56% of CIOs admitted that legacy applications are delaying digital transformation for the entire organization, and 84% said an inability to roll out new services is affecting business competitiveness. When asked why enterprises don’t rid their legacy applications of technical debt, CIOs cited:  The cost of re-architecting or transforming applications (68%), user disruption (43%), and lack of in-house skills (36%).

Executives may lack visibility into the true cost imposed on their organizations by technical debt in their legacy systems. Let’s look at how to quantify technical debt in dollars and cents, and then look at the bigger picture of business risk.

Assessing Your Technical Debt: The Math

When deciding when or if it is the right time to pay off technical debt, most organizations assess it in terms of the dollars required. Kelly Sutton described the math behind paying off technical debt. To quantify how much debt is currently carried by the organization, it is necessary to calculate the principal and interest:

  • The investment required to pay off the debt (programmer hours or contractor developers) can be thought of as the principal.

  • The cost of continuing business-as-usual by using engineering resources to bridge the debt on existing platforms can be thought of as the interest. This can be measured in terms of the number of incidents to resolve or the person-hours required.

With this way of quantifying the cost of technical debt, enterprises can compare the ongoing cost of the technical debt versus the one-time cost to fix it. This provides a framework for decision-making about which debts are worth paying off and how IT projects should be prioritized. But this assessment only captures the short-term (near current) condition of your technical debt. For a longer-term assessment, we have to expand the thought process to include the softer costs.

Calculating the True Cost of Technical Debt: Opportunities Lost

Once you can perform the math of technical debt today, it’s time to think in bigger terms. After all, technical debt is not solely based on the cost of hampered organizational productivity today. The much larger cost may be found in how technical debt will constrain your business in the future.

To calculate the true cost of technical debt, we need to think in terms of risk. What current business opportunities could be jeopardized or even lost in the future due to excess technical debt? Consider these questions:

  1. Will technical debt prevent your product teams from delivering new features, products, or services that customers demand?

  2. Does technical debt obstruct your organization’s ability to work effectively and efficiently? For example, is your organization able to collect and visualize data, in real-time, from every global location for complete enterprise visibility?

  3. Is technical debt limiting workforce recruiting and retention? For example, does a lack of support for cloud platforms prevent hiring remote employees? Does a convoluted codebase make it difficult to attract top IT developers?

  4. Are there opportunities to partner with (or acquire) promising fintech or insurtech startups that cannot be explored because technology stacks are too disparate?

  5. Is the organization already losing customers due to a stale/outdated customer experience? How quickly might that accelerate as new competitors arrive?

  6. How might technical debt prevent full monetization of enterprise data?

In the larger competitive landscape, what does your organization stand to lose in both the near- and long-term? The long-term is more difficult to predict, because you do not yet know all of the opportunities that will arise in the future, given the rapid pace of technological change. But bank on this: If technical debt is already slowing your organization, or forcing you to pivot away from new opportunities, the “rising inflation on technical debt” will only compound the problem with time. Characterize the full risk profile of technical debt now, so the executive team can gain greater visibility into its true cost for decision-making purposes.

About Synchrony Systems

At Synchrony Systems, we help companies reduce technical debt by transforming legacy, in-house applications to modern technologies while preserving business-critical functionality. With our Modernization Lifecycle Platform, we provide an automated, reliable, and transparent modernization while ensuring 100% functional equivalency with no operational interruptions. And with our continuous upgrades, your in-house applications will never fall behind again.