In recent years, the construction industry has witnessed an influx of new technologies including advancements in AI applications, robotics and automation, virtual and augmented reality, predictive analytics, and a surge to the cloud creating a crowded technological landscape. Because of this rapid change, technical debt has become a critical concern.
This article explores the impact of technical debt on a company through a real-world case study and provides actionable steps for construction financial professionals (CFPs) to manage and mitigate this often-overlooked potential burden.
What Is Technical Debt?
Technical debt refers to suboptimal technology infrastructure that accumulates over time that can significantly impact a company’s profitability, operational efficiency, and overall growth trajectory. For CFPs, understanding and contending with technical debt is crucial for maintaining your organization’s financial health and paving the way for long-term success.
By making technical debt a business priority, companies can intend to refine their technology investments, enhance operational efficiency, and support long-term viability and resilience.
To illustrate these outcomes, let’s look at a real-world example of a company with constraining technical debt and how it was resolved.
Technical Debt Case Study
Founded in the 1960s as a family-owned construction company and in its third generation of leadership, ABC has achieved remarkable growth, boasts a robust portfolio, impacts a broad demographic of end users with three generations in its workforce, and possesses a strong presence across multiple locations. With revenues exceeding $300 million and a dedicated team of 250 employees, ABC continues to shape the Midwest regional construction landscape.
However, with its systems and processes rooted in tradition, it failed to evolve with the company’s growth. Despite its success, the need for modernization became evident, and the importance of addressing technical debt emerged to meet the demands of the business. Over two decades, ABC’s ongoing practices gradually contributed to the accumulation of technical debt:
- Growth in different markets, service lines, and geographies influenced one-off software purchases to solve the problems at hand. The lack of a cohesive, long-term strategy around procuring technology applications created a web of integrations and manual processes across the entire business.
- Siloed departments (e.g., project management, finance, estimating, business development, and human resources) made individual software decisions without considering the bigger picture. These rogue purchases created a fragmented technology landscape where solutions-based stopgaps did not communicate effectively, leading to inefficiencies.
- These siloed purchases also created a lack of control in ownership and the costs of applications, software, integrations, databases, etc. There was little oversight on how much was spent as the liability lived within the silos with no visibility.
- Solutions-oriented software for promised functionality overlooked their alignment with business requirements and strategic objectives, which led to oversold or overbought products.
- Maintaining outdated solutions-oriented software and putting projects “on the shelf,” while still paying for support and maintenance, led to spending money on vendors and products that were not adding value.
These practices had a lasting negative impact on ABC’s business, including:
- Lost dollars: Throwing good money to bad solutions-based approaches and paying for technology that was not
adding value. - Talent retention: Legacy systems and disjointed applications created a divide among departments and project teams. Employees even left the company because their jobs were hindered rather than supported by technology (and required an advanced understanding
of Microsoft Excel). - Attracting talent: ABC was unable to attract strong candidates because it could not equip its people with efficient processes or leading tools in the market.
- Overworked employees: With a lack of systems integration, employees (especially in finance and project management) used tools like Microsoft Excel that involved manual entry, which led to unnecessary overtime for field workers inputting, approving, and assisting in time entry review, that resulted in lost productivity.
- Lack of data integrity: Data existed in different systems and was not accessible by shared departments. Financial and project reporting was done after the fact and not in real time. Data was pulled from many spreadsheets and systems. This lack of integrity led to a breakdown in trust in the data.
The Big Pay-Off
When ABC finally identified technical debt and took the necessary steps to identify it, measure its impact, and help establish standards and processes, the company experienced a turnaround over 18 months and recognized these business outcomes:
- IT now allocates and assists in administering its team with a set of standards and controls put in place.
- Technical spend was reduced by 32% in the first 12 months. This money was then reallocated to fund new initiatives.
- With real-time dashboards and metrics, project teams can now make data-driven decisions and focus on the key items that influence their day-to-day work.
- These changes created a culture of curiosity and innovation. People were excited to take advantage of emerging applications, such as AI tools, to make their jobs easier.
Making Technical Debt a Business Priority
Step 1: Technical Debt Check
A technical debt check begins with a detailed and precise estimate of existing technical debt, such as assets, license and subscription fees, data management tools, integrations, and middleware with their links to business value. This initial step paves the way for garnering genuine stakeholder support, setting realistic budgets, allocating resources accurately, and prioritizing those initiatives that will have the greatest impact.
In the case study, ABC faced significant technical debt and operational inefficiencies. However, with the arrival of a new IT director (“Bob”), positive changes began. Supported by the CFO and executive team, Bob meticulously gauged the company’s technology landscape. He questioned the purpose of each system, identified redundancies, and reported whether solutions-oriented software aligned with business needs.