Technical Debt is the cost to the system owner as a result of prior decisions made to save time or money during the engineering, procurement, or installation of a solar project.
Technical Debt is a metaphor for the difference between the value you paid for the solar system and the value of the system you actually took ownership of.
Technical Debt = Expected Asset Value – Actual System Value
Let’s say you purchased a PV system that you expected to be designed and installed per all industry best practices but received one with hidden shortcomings in the design or installation. Technical debt is the value to resolve the shortcomings.
Those shortcomings are a liability that will be felt financially sooner or later. Obviously, the best solution is to identify and eliminate the items causing Technical Debt before you take ownership of the solar asset. Alternatively, you can either adjust your financial model to reflect the cost of technical debt or negotiate a lower purchase price and address the technical debt yourself.
Analogy to Financial Statements
Technical debt is a liability that acts like financial debt with an “interest” expense that is incurred until Technical Debt is paid off (all issues resolved).
Technical debt on the balance sheet will result in interest expense on the P&L that comes in the form of:
Until Technical Debt is eliminated (all issues resolved) you will continue to pay interest in the two forms above.
How is Technical Debt caused?
How does it affect you?
How is it prevented?
Conclusion
If you want to eliminate Technical Debt and the ongoing interest expense, contact Pure Power to learn how our Owner’s Engineering services eliminate the Technical Debt that would put your financial model at risk.