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 distastefulrecurring 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 Top Next Issue
Are 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 welcomeWould you like to see your comments posted here? rbrenqdSTxPuhSGoEvrIMner@ChacFvszOVlwSRwawMAAoCanyon.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.
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.
More articles on Personal, Team, and Organizational Effectiveness:
- Double Your Downsizing Damage
- Some people believe that senior management is actually trying to hurt their company by downsizing.
If they are they're doing a pretty bad job of it. Here's a handy checklist for evaluating the performance
of your company's downsizers.
- When You Think They've Made Up Their Minds
- In tough negotiations, when attempts to resolve differences have failed, we sometimes conclude that
"they've made up their minds," but other explanations abound. Keeping an open mind about why
other people seem to have closed theirs can help us find a resolution.
- Selling Uphill: Before and After
- Whether you're a CEO appealing to your Board of Directors, your stockholders or regulators, or a project
champion appealing to a senior manager, you have to "sell uphill" from time to time. Persuading
decision-makers who have some kind of power over us is a challenging task. How can we prepare the way
for success now and in the future?
- Workplace Barn Raisings
- Until about 75 years ago, barn raising was a common custom in the rural United States. People came together
from all parts of the community to help construct one family's barn. Although the custom has largely
disappeared in rural communities, we can still benefit from the barn raising approach in problem-solving
- Making Meaning
- When we see or hear the goings-on around us, we interpret them to make meaning and significance. Some
interpretations are thoughtful, but most are almost instantaneous. Since the instantaneous ones are
sometimes goofy or dangerous, here's a look at how we make interpretations.
Forthcoming issues of Point Lookout
- Coming October 25: Workplace Memes
- Some patterns of workplace society reduce organizational effectiveness in ways that often escape our notice. Here are five examples. Available here and by RSS on October 25.
- And on November 1: Risk Creep: I
- Risk creep is a term that describes the insidious and unrecognized increase in risk that occurs despite our every effort to mitigate risk or avoid it altogether. What are the dominant sources of risk creep? Available here and by RSS on November 1.
I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenBpPdqUOTsFrXYvjtner@ChacTtbZrXSlbLcuRsNqoCanyon.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:
- Get 2001-2 in Geese Don't Land on Twigs (PDF, USD 11.95)
- Get 2003-4 in Why Dogs Wag (PDF, USD 11.95)
- Get 2005-6 in Loopy Things We Do (PDF, USD 11.95)
- Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, USD 11.95)
- Get 2009-10 in The Questions Not Asked (PDF, USD 11.95)
- Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, USD 28.99)
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
- Ten Project Management Fallacies: The Power of Avoiding Hazards
- Most of what we know about managing projects is useful and effective, but some of what we know "just ain't so." Identifying the fallacies of project management reduces risk and enhances your ability to complete projects successfully. Even more important, avoiding these traps can demonstrate the value and power of the project management profession in general, and your personal capabilities in particular. In this program we describe ten of these beliefs. There are almost certainly many more, but these ten are a good start. We'll explore the situations where these fallacies are most likely to expose projects to risk, and suggest techniques for avoiding them. Read more about this program. Here's a date for this program:
- The Power Affect: How We Express Our Personal Power
- Many people 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.