Posts Tagged ‘Balance Sheet’
Forrester on Managing Technical Debt
Forrester Research analysts Dave West and Tom Grant just published their report on Agile 2010. Here is the section in their report on managing technical debt:
Managing technical debt
Dave: The Agile community has faced a lot of hard questions about how a methodology that breaks development into short iterations can maintain a long-term view on issues like maintainability. Does Agile unintentionally increase the risk of technical debt? Israel Gat is leading some breakthrough thinking in the financial measures and ramifications of technical debt. This topic deserves the attention it’s beginning to receive, in part because of its ramifications for backlog management and architecture planning. Application development professionals should :-
- Starting captured debt. Even if it is just by encouraging developers to note issues as they are writing code in the comments of that code, or putting in place more formal peer review processes where debt is captured it is important to document debt as it accumulates.
- Start measuring debt. Once captured, placing a value / cost to the debt created enables objective discussions to be made. It also enables reporting to provide the organization with transparency of their growing debt. I believe that this approach would enable application and product end of life discussions to be made earlier and with more accuracy.
- Adopt standard architectures and opensource models. The more people that look at a piece of code the more likely debt will be reduced. The simple truth of many people using the same software makes it simpler and less prone to debt.
Tom: Since the role I serve, the product manager in technology companies, sites on the fault line between business and technology, I’m really interested in where Israel Gat and others take this discussion. The era of piling up functionality in the hopes that customers will be impressed with the size of the pile are clearly ending. What will replace it is still undetermined.
I will be responding to Tom’s good question in various posts along the way. For now I would just like to mention the tremendous importance of automated technical debt assessment. Typical velocity of formal code inspection is 100-200 lines of code per hour. Useful and important that formal code inspection is, there is only so much that can be inspected through our eyes, expertise and brains. The tools we use nowadays to do code analysis apply to code bases of any size. Consequently, the assessment of quality (or lack thereof) shifts from the local to the global. It is no more no a matter of an arcane code metric in an esoteric Java class that precious few folks ever hear of. Rather, it is a matter of overall quality in the portfolios of projects/products a company possesses. As mentioned in an earlier post, companies who capitalize software will sooner or later need to report technical debt as line item on their balance sheet. It will simply be listed as a liability.
From a governance perspective, technical debt techniques give us the opportunity to carry out consistent governance of the software process based on a single source of truth. The single source of truth is, of course, the code itself. The very same truth is reflected at every level in the organization. For the developer in the trenches the truth manifests itself as a blocking violation in a specific line of code. For the CFO it is the need to “pay back” $500K in the very same project. Different that the two views are, they are absolutely consistent. They merely differ in the level of aggregation.
The Headlong Pursuit of Growth, and Its Aftermath
The December 12-18, 2009 issues of The Economist features a couple of fascinating articles on Toyota Motor Corporation. According to The Economist, Toyota’s President reached the following dire conclusion on the situation Toyota is facing:
Mr Toyoda’s alarm call last month appears partly to have been prompted by reading “How the Mighty Fall”, a book by Jim Collins, an American management writer, which identifies five stages of corporate decline. Mr Toyoda reckons that Toyota may already be at the fourth stage. Companies at this point, says Mr Collins, frequently still have their destinies in their own hands, but often flit from one supposed “silver bullet” strategy to another, thus accelerating towards the fate they are trying to avoid.
In the litany of things that went wrong, an interesting point is made about the Toyota Production System:
… the recalls continued and Toyota started slipping in consumer-quality surveys. A year later Consumer Reports, an influential magazine, dropped three Toyota models from its recommended list. The magazine added that it would “no longer recommend any new or redesigned Toyota-built models without reliability data on a specific design”. People within the company believe these quality problems were caused by the strain put on the fabled Toyota Production System by the headlong pursuit of growth.
Whatever Agile method you practice – Scrum, Lean, Kanban, Crystal, etc. – you need to be cognizant of three touch points with the Toyota experience reported above:
- Just like the Toyota Production System, your software method is a “vehicle” which is subject to policy decisions from above. It cannot, however, compensate for policy failures.
- If your company relentlessly pursues growth, the quality/technical debt liability it is likely to incur coud easily outweigh the benefits of growth. Consider the upside potential of growth vis-a-vis the downside of the resultant technical debt. When appropriate, monetize technical debt using the technique described in Technical Debt on Your Balance Sheet.
- In addition to monetizing the technical debt, evaluate the various kinds of risks indicated in The View From The Executive Suite. A sense of how devastating those might be is given by Toyota’s own experience:
Just as Cadillac used to be synonymous with luxury and BMW with sportiness, Toyota was a byword for quality and reliability… The danger in all of this for Toyota is that its loyal (and mostly satisfied) customers in America have long believed that the firm was different from others and thus hold it to a higher standard. The moment that Toyota is seen as just another big carmaker, a vital part of the mystique that has surrounded the brand will have been rubbed away.
Please remember – unless you work for Toyota Motor Corporation, chances are your company would not be able to take the kind of risk Toyota can.
It Won’t Work Here
Two major obstacles to vetting Agile topics effectively with executives were identified in the post entitled The Business Value of Agile Software Methods:
- Lack of hard quantitative data.
- The “It won’t work here” syndrome.
As indicated in the post, the data provided in the study How Agile Projects Measure Up, and What This Means to You and the book The business Value of Agile Software Methods address the first obstacle. This follow-on post is about the second of the two obstacles – the resistance to Agile transformation in the face of hard data on its benefits to other companies.
Resistance in the form of “it won’t work here” is typically anchored in one or more of the following five beliefs:
- Uniqueness: “Some very unique elements exist in our company. These elements render industry data inapplicable.”
- Secret sauce: “Something very special element existed in the companies reporting great success with Agile. Our company does not possess nor have access to the ‘secret sauce’ that enabled success elsewhere.”
- Cultural change: “For the Agile initiative to succeed, our corporate culture needs to change. The required cultural change takes a lot of time and involves a great deal of pain. All in all, the risk of rolling Agile is unacceptably high.”
- Affordability: “The company is strapped to the degree that investment in another software method is a luxury it can’t afford.”
- Software is not core to us: “We are not a software company, nor is software engineering our core competency. Software is merely one of the many elements we use in our business.”
Various other reasons for not going Agile in the context of a specific company are, of course, cited at some frequency. The five reasons listed above seem to be encountered most often by Agile champions.
Use the following counter-arguments to turn around these beliefs:
- Uniqueness: Very rare occurence. Companies use similar business designs, apply fairly standard operating procedures, utilize common technology, are subject to the same regulatory constraints that their competitors are, have offshore sites in places like India, etc. Discussion of your company vis-a-vis its direct competitor usually suffices to overcome the uniqueness claim.
- Secret sauce: The ‘secret sauce’ is neither secret nor difficult to concoct. For example, the secret sauce used by BMC Software in its successful Agile initiative had four simple ingredient: intentionality, know-how, flexibility and patience. Based on insights by colleague and friend Alan Atlas, I have recently added mutuality as the fifth ingredient. Your own secret sauce might be somewhat different, but I very much doubt that an extravagantly exotic sauce will be needed.
- Cultural change: Myth has it that Agile would only work in the Collaborative culture. Reality is it will work in any of the four core cultures identified by Schneider: Control, Competence, Cultivation or Collaboration. See Four Principles, Four Cultures, One Mirror for an approach to building Agile on the strength of whatever culture prevails in your company/organization.
- Affordability: The question to ask is whether you can afford not to improve your software. Tools are readily available to quantify your company’s technical debt. Monetize the technical debt and include it as a liability line item in a pro forma balance sheet. Doing so is likely to shift the discussion from affordability to how to create elbow room for handling the technical debt.
- Software is not core to us: Indeed, it might not be but it is likely to become so in just about any industry. Use an analogy like the record industry vis-a-vis the publishing industry. The record industry has been decimated by software over the past decade. Chances are a similar decimation is likely to occur in publishing unless the industry transforms itself. (Some of the decimation that already took place in publishing has become quite visible recently. For example, last week Bloomberg LP announced completion of the acquisition of BusinessWeek for a paltry $5M).
You will need to be realistically patient with respect to the time it takes for the considerations listed above to sink in. It could easily take six months just to forge a consensus on the subject in the executive team. It might then take another six month to operationalize the consensus. Chances are there is an elephant hidden somewhere in the “room” if you don’t carry the day with within a one year period of diligently vetting Agile with your executives.
Technical Debt on Your Balance Sheet
Colleague Jonathon Golden introduced me to a new plug in to Sonar. The plug in calculates the cost to fix the technical debt accrued in a product. For example, you might find an accrued technical debt amounting to $1M in a 500KLOC application. Obviously, you will need to spend $2 per each line of code to “pay back” your debt.
The expression of technical debt in monetary terms is intriguing. Unlike financial debt, there is no credit limit on technical debt. Hence, unless a team is proficient at refactoring on an ongoing basis, technical debt tends to grow over time as the underlying software decays. Beyond a certain level of debt, no good option is available. The code decayed to the point in which fixing anything in a hazardous proposition – every fix is likely to break something else. Under such circumstances, most/all of the development team gets sucked into maintaining the software instead of developing new features and functions.
Monetizing technical debt can have two far reaching implications, as follows:
- A credit limit on technical debt can be established. For example, when the technical debt reaches a certain level (say 25 cents per line of code), new functionality is put on hold. The team applies itself to aggressive refactoring to reduce the debt to an acceptable level.
- For companies who capitalize software, technical debt could become a line item on the balance sheet. It will simply be listed as a liability.
From a customer perspective, the monetized technical debt on the balance sheet of a software vendor is a proxy for the technical risk involved in licensing software from this vendor. Such monetization could be easily extended to report technical debt per product family. With such reporting in place, the technical risk associated with licensing a specific product can be assessed.
Software vendors might frown at the requirement to monetize technical debt. I would contend that such a reporting requirement is absolutely consistent with the spirit of the Agile Manifesto:
Customer collaboration over contract negotiations
In other words, if you are reluctant to list your monetized technical debt you can’t really claim you practice Agile.
The Agile Executive 