Point Lookout: a free weekly publication of Chaco Canyon Consulting
Volume 10, Issue 40;   October 6, 2010: Management Debt: II

Management Debt: II

by

As with technical debt, we incur management debt when we make choices that carry with them recurring costs. How can we quantify management debt?
Eggs Sardou at Lucile's: poached eggs, creamed spinach, gulf shrimp, grits

Eggs Sardou at Lucile's: poached eggs, creamed spinach, gulf shrimp, grits. Right about now (late 2010), supplies of two of the products pictured here are threatened by two different incidents that affect their respective supply chains. Eggs have been recalled because of salmonella contamination (see the U.S. Food and Drug Administration's Web site), and the BP oil disaster in the Gulf of Mexico has interrupted supplies of gulf shrimp (see the U.S. National Oceanic and Atmospheric Administration's Web site). The two incidents are probably traceable, respectively, to relaxation of Federal regulatory activity in egg production and oil production. If indeed deregulation is responsible, it could be interpreted as a form of management debt on a societal scale. That is, the decision to achieve lower cost production by deregulation might have been a decision that incurred management debt, and the "interest charges" might then have been occasional supply interruptions caused by elevated recall rates or elevated incidence of catastrophic production accidents. To some extent, these consequences of deregulation are predictable, because deregulation shifts responsibility for safe operations from more impartial federal inspectors to producers, who have clear conflicts of interest. Photo courtesy squidish (Susan Michael).

The concept of management debt, like technical debt, is useful for forecasting the costs of consequences of decisions. Projections of recurring charges resulting from decisions can help discriminate among alternatives. Here are four tips for those who want to project the costs of management debt.

Quantifying management debt is distasteful
Even when we understand a decision's long-term costs, projections depend on market conditions, technological evolution, the legal environment, and many other factors. Quantitative projections can face criticism of their most basic assumptions.
Still, there's an irony in these criticisms. We have little difficulty accepting three-year and five-year projections for projects we adore, or for the enterprise itself. The same assumptions used for those projections can serve for projecting the costs of management debt. True, some additional estimates might be needed, but they're usually no more difficult to construct than are the estimates we're already making.
What makes the interest on management debt so much more difficult to project is very simple: it's distasteful.
Opinions about management debt can be political
Whenever we quantify the consequences of a distasteful decision, and the projections we make are debatable, politics enters the conversation. The likelihood and intensity of the politics increases with the importance of the resources under debate. Political activity in itself is not unhealthy, but long-lived, intense political debate can become toxic.
A pattern of political activity surrounding issues of management debt can make effective internal resolution so improbable that the debate can remain unresolved long enough to threaten organizational survival. When this happens, seek credible impartial opinions outside the organization.
Lost revenue opportunities are rarely considered
When the What makes the interest on
management debt so difficult
to project is very simple:
it's distasteful
recurring costs of management debt prevent the organization from exploiting revenue opportunities, we must charge those lost opportunities to the cost of carrying management debt. And since revenue far exceeds the costs of generating it, the most significant costs of management debt are often lost revenue.
Yet, we rarely include lost revenue opportunities in the cost of decisions, especially decisions not to do something. Lost revenues seem so debatable, so flimsy, and so speculative. To break this habit, focus not only on unexploited opportunities for new revenue, but also on declining market share and lost customers.
Stagnation is surprisingly expensive
An often-neglected source of interest on management debt is the cost of doing nothing. For instance, if we must terminate people who've stagnated because we failed to keep our technology current, the costs of those terminations, and the consequent loss of organizational knowledge, trace directly to the decision to continue using outdated technology.
Accurate accounting for stagnation requires not only recognition of the recurring charges for the management debt, but also accrual of the cost of ultimately dealing with the stagnation.

The decision not to account for management debt does itself incur management debt, because it distorts the organization's view of its available resources. Does your organization have an accurate accounting of its resources? First in this series  Go to top Top  Next issue: The Politics of the Critical Path: II  Next Issue

52 Tips for Leaders of Project-Oriented OrganizationsAre your projects always (or almost always) late and over budget? Are your project teams plagued by turnover, burnout, and high defect rates? Turn your culture around. Read 52 Tips for Leaders of Project-Oriented Organizations, filled with tips and techniques for organizational leaders. Order Now!

Your comments are welcome

Would you like to see your comments posted here? rbrenXUeqhhuxwTEaHyUSner@ChacVtclFXPegEecFoIboCanyon.comSend me your comments by email, or by Web form.

About Point Lookout

Thank you for reading this article. I hope you enjoyed it and found it useful, and that you'll consider recommending it to a friend.

Point Lookout is a free weekly email newsletter. Browse the archive of past issues. Subscribe for free.

Support Point Lookout by joining the Friends of Point Lookout, as an individual or as an organization.

Do you face a complex interpersonal situation? Send it in, anonymously if you like, and I'll give you my two cents.

Related articles

More articles on Personal, Team, and Organizational Effectiveness:

Wildflowers in the Grand Mesa Uncompahgre and Gunnison National ForestsRenewal
Renewal is a time to step out of your usual routine and re-energize. We find renewal in weekends, vacations, days off, even in a special evening or hour in the midst of our usual pattern. Renewal provides perspective. It's a climb to the mountaintop to see if we're heading in the right direction.
Senator Mark Warner (Democrat of Virginia) meets with mayorsDiscussus Interruptus
You're chairing a meeting, and to your dismay, things get out of hand. People interrupt each other so often that nobody can complete a thought, and some people dominate the meeting. What can you do?
FedEx logoFedEx, Flocks, and Frames of Reference
Your point of view — or reference frame — affects what you see, and how you experience the world around you. By choosing a reference frame consciously, you can see things differently, and open a universe of new choices.
A broadcast-only sporting event during a pandemicSocial Distancing for Pandemic Flu
It's time we all began to take seriously the warning about a possible influenza pandemic. Whether or not your organization has a plan, you can do much to reduce your own chances of infection, and the chances of mass infection, by adopting a set of practices known as social distancing.
Post-War Lionel TrainsWhen It's Just Not Your Job
Has your job become frustrating because the organization has lost its way? Is circumventing the craziness making you crazy too? How can you recover your perspective despite the situation?

See also Personal, Team, and Organizational Effectiveness and Workplace Politics for more related articles.

Forthcoming issues of Point Lookout

Artist's concept of possible colonies on future mars missionsComing June 28: Tackling Hard Problems: I
Hard problems need not be big problems. Even when they're small, they can halt progress on any project. Here's Part I of an approach to working on hard problems by breaking them down into smaller steps. Available here and by RSS on June 28.
Artist's depiction of a dust storm on Mars with lightningAnd on July 5: Tackling Hard Problems: II
In this Part II of our look at solving hard problems, we continue developing properties of the solution, and look at how we get from the beginning to the end. Available here and by RSS on July 5.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenvwqOUUuczGKHQWSQner@ChacucTdiOgHPXPBywgFoCanyon.com or (617) 491-6289, or toll-free in the continental US at (866) 378-5470.

Get the ebook!

Past issues of Point Lookout are available in six ebooks:

Reprinting this article

Are you a writer, editor or publisher on deadline? Are you looking for an article that will get people talking and get compliments flying your way? You can have 500 words in your inbox in one hour. License any article from this Web site. More info

Public seminars

The Power Affect: How We Express Our Personal Power
Many The Power Affect: How We Express Personal Powerpeople who possess real organizational power have a characteristic demeanor. It's the way they project their presence. I call this the power affect. Some people — call them power pretenders — adopt the power affect well before they attain significant organizational power. Unfortunately for their colleagues, and for their organizations, power pretenders can attain organizational power out of proportion to their merit or abilities. Understanding the power affect is therefore important for anyone who aims to attain power, or anyone who works with power pretenders. Read more about this program. Here are some upcoming dates for this program:

Creating High Performance Virtual Teams
Many Creating High Performance Virtual Teamspeople experience virtual teams as awkward, slow, and sometimes frustrating. Even when most team members hail from the same nation or culture, and even when they all speak the same language, geographic dispersion or the presence of employees from multiple enterprises is often enough to exclude all possibility of high performance. The problem is that we lead, manage, and support virtual teams in ways that are too much like the way we lead, manage, and support co-located teams. In this program, Rick Brenner shows you how to change your approach to leading, managing, and supporting virtual teams to achieve high performance using Simons' Four Spans model of high performance. Read more about this program. Here's an upcoming date for this program:

The Race to the South Pole: Ten Lessons for Project Managers
On 14The Race to the Pole: Ten Lessons for Project Managers December 1911, four men led by Roald Amundsen reached the South Pole. Thirty-five days later, Robert F. Scott and four others followed. Amundsen had won the race to the pole. Amundsen's party returned to base on 26 January 1912. Scott's party perished. As historical drama, why this happened is interesting enough, but to organizational leaders, business analysts, project sponsors, and project managers, the story is fascinating. Lessons abound. Read more about this program. Here's an upcoming date for this program:

Follow Rick

Send email or subscribe to one of my newsletters Follow me at LinkedIn Follow me at Twitter, or share a tweet Follow me at Google+ or share a post Subscribe to RSS feeds Subscribe to RSS feeds
The message of Point Lookout is unique. Help get the message out. Please donate to help keep Point Lookout available for free to everyone.
21st Century Business TravelAre your business trips long chains of stressful misadventures? Have you ever wondered if there's a better way to get from here to there relaxed and refreshed? First class travel is one alternative, but you can do almost as well (without the high costs) if you know the tricks of the masters of 21st-century e-enabled business travel…
Go For It: Sometimes It's Easier If You RunBad boss, long commute, troubling ethical questions, hateful colleague? Learn what we can do when we love the work but not the job.
303 Tips for Virtual and Global TeamsLearn how to make your virtual global team sing.
101 Tips for Managing ChangeAre you managing a change effort that faces rampant cynicism, passive non-cooperation, or maybe even outright revolt?
101 Tips for Effective MeetingsLearn how to make meetings more productive — and more rare.
Exchange your "personal trade secrets" — the tips, tricks and techniques that make you an ace — with other aces, anonymously. Visit the Library of Personal Trade Secrets.