I have used this term in analogy to the term “technical debt,” which is in wider usage. Functional debt, in my definition, refers to the places where legacy IT systems don’t really do what the company needs them to do today. Often the company will have found workarounds because the system doesn’t do what they need; or, they may have had to constrain their business processes or forego moving into new markets because of this functional debt. In that sense it is “debt”—it has a cost, as if the company is paying interest on it until it is retired by replacing or enhancing the system.
— War and Peace and IT: Glossary, Mark Schwartz