Boomer’s Blueprint

Technical debt: Is your firm underwater?

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The concept of technical debt is not new, yet it is new to many in the accounting profession because it is not recorded as a liability on the books. Remember Enron?

In 1992, Ward Cunningham introduced a simple concept to the international software community. Cunningham, the inventor of the wiki, discussed how releasing software that is not well-tested is like going into technical debt.

The end users see a functioning application. However, the underlying code has issues that need to be resolved before the application can move forward. These debts can be the result of shortcuts, lack of knowledge or may be unknown until the developers attempt to make a change.

Technical debt is a highly specialized term in many industries, but the concept has broad business and technological implications for accounting firms and their clients. The war for talent and the disruption caused by rapidly improving automation serve to exacerbate the issue.

 

RELEVANT QUESTIONS

There are some questions you should ask about the current state of your firm’s technology.

These include:

  • What does it cost to keep our technology current?
  • Do our processes leverage the capabilities of the technology?
  • Have we provided adequate training or do we use the “random walk of training” method?
  • How many applications do we utilize with duplicate information?
  • What would the additional cost be to be a leader, rather than a follower, in innovation and technology?

The answers to your questions will probably confirm that your firm has technical debt. Yet many justify the debt by comparison to peers, rather than determining how to improve and ascertaining the amount of the required investment.

The purpose of these questions is to demonstrate that there are areas in your firm where you have taken shortcuts, and many of the requirements were not met.

You can have technical debt in people, processes and planning, so don’t just focus on technology. You may not have provided adequate training, especially at the partner and administrative levels.

You may not have used the DMAIC (define, measure, analyze, improve and control) model with regard to your processes. Finally, you may not have spent adequate time in visioning, strategic planning, and developing an IT roadmap.

 

IMPACT ON M&A

Allan Koltin, a leading consultant in firm mergers and acquisitions, often refers to this as milking, rather than investing, in the firm. The issue with technical debt, like any debt, is that it accrues interest that must be paid off before moving on to a new purchase. Unlike capital debt where the rates are low, technical debt carries a high rate of interest to the disruption of the global market and commoditization of core services.

In the area of firm mergers, there is a cost of $10,000 to $12,000 per employee to integrate a firm into the new entity. Most firms allow the technical debt to accumulate, rather than addressing the debt at the time of the merger and ripping and replacing the technology and processes to meet the standards of the acquiring firm. The firms that employ the rip-and-replace strategy tend to have better technology leadership, standards, policies and procedures than the firms that accept the existing technology along with the technical debt.

This problem is compounded when the acquiring firm also has a high level of technology debt. This can ultimately result in cash flow problems, loss of talent and loss of clients.

 

ASSESS AND MANAGE DEBT

There are several steps firms can utilize to evaluate and manage the technical debt. Since lower debt and active management are advantageous and lead to increased innovation, the best firms tend to get better, while those with high technical debt wait to react until the time of a crisis (e.g., loss of key people, loss of clients, security breach, or reduction in partner income). Here are some responsible steps:

1. Conduct an independent external review of your IT roadmap, key processes and people. The review will save time, draw attention to the importance at the partner level, and focus resources on priority projects.

2. Utilize Lean Six Sigma methodology with regard to processes. This will provide leverage of resources and scalability.

3. Look to leading organizations (peers) inside and outside of the accounting profession. Join national/global peer groups that focus on reducing technical debt.

4. Develop your talent and leadership skills at all levels.

5. Hold yourself and others accountable.

Too often, partners justify technical debt with one or all of the following excuses:

1. The partners are making more than they have ever made; why should we change?

2. We have always done it this way.

3. The competition is doing it the same way as we are.

4. That is not part of my department or job.

Get past these excuses and look at what it costs you in stale processes. Some of the low-hanging fruit is available to firms and their clients. Here are just a few to get you thinking:

1. Using spreadsheets for reporting, rather than system-generated reports.

2. Bill payment — manually processing accounts payable and writing checks.

3. Expense reporting — using spreadsheets and copies of receipts, rather than expense-reporting mobile applications that can integrate with practice management and a general ledger.

4. Automating the tax scheduling and aggregation of data through new tools and systems.

5. One-way workflow to eliminate loops and cycle time. Paper is a workflow obstacle.

Overcoming technical debt requires new mindsets, skill sets and tool sets. The mindset is the greatest challenge for most accountants.

The focus needs to first be on mindset, then skill sets and tool sets. The tool sets are available and improving at a rapid rate. New people in the workforce have many of the needed skill sets.

Going forward, you should proactively track your technical debt. Decide upon a payment method and focus on priority projects. A strategic plan and integrated IT roadmap will assist you in sustaining or growing your success and becoming future-ready.

The goal is to minimize technical debt and focus on innovation, which requires hindsight, insight and foresight.

L. Gary Boomer, CPA, CITP, CGMA, is the visionary and strategist at Boomer Consulting Inc.

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