To have an under or on-target budget software development project, cost estimation is essential. When it comes to software development budgets, costs are always changing.
This is because each project has specific requirements from the customer. So, each project will vary in deadline and cost.
If a task is bigger or requires more time and energy, it will cost more. Much also depends on the developer team. Every team has different strengths, ways of working, and workflow.
Challenges like scope changes, scope creep, and delays can affect the project in various ways. It can impact the timeline and completion of the whole project or investment.
All these factors make creating project cost estimations difficult. Done correctly, software estimation can be an effective and helpful tool.
It can help estimators to provide value to their investments and organizations. The investment of time and effort is well worth it.
Cost Estimation – Essential in Project Management
The ability to make accurate cost estimates is vital to a solid and effective project plan. Cost estimation uses many techniques and ways to figure out the project variable. This is then translated into deliverables.
A ‘cost estimation’ is an estimation or approximation of costs for a custom project. They include the resources needed to complete the project and the tasks involved.
In development, the software is never completed. There are always new tools and features to add.
This brings up an important question. How much should be budgeted for a custom software development project?
Sound cost estimations will prevent risks during the estimation development. One way to accomplish this is to identify outlier costs beforehand.
If the estimation process is thorough, it will be actionable.
Keeping the development to a solid and deliverable-driven budget prevents scope creep. It will keep workflows aligned with available resources.
Of course, there is a level of uncertainty in estimations. But, noting and identifying “Known unknowns” affords software development budgets a little flexibility.
This will help control future development issues and inform a plan of action to solve them.
Below are some common problems and mistakes. These relate to software development budgets and the estimation process.
Set the Right Expectations
Companies should set clear expectations and give the right amount of guidance. This focusing will help the development team to do well on the project and to deliver it on time.
For software development budget estimators, the following list should be familiar.
- Document Code Release: Document and share the code release process.
- Sprint Schedule: The team delivers 80% of the code they make and follow the sprint schedule.
- Spike When Necessary: It is permissible for the development team to have some spikes for components.
- Daily Meetings: The team has daily meetings for about 15-30 minutes. Here they communicate problems and report progress.
- Demo Progress: Participation in a formal meeting among team members. Demonstration of completed work takes place.
- Track Changes in Code: The team tracks and highlights changes in the code.
- Pair Program Code: The soon-to-be-released code is pair programmed.
- Testing: The development team uses unit test frameworks.
- Acceptance Testing: The team makes acceptance tests before developers work on the project.
This is a list compiled by developers of the best coding practices. They help to ensure that developed software is completed and released on time.
However, this list doesn’t work for every company’s situation. Some projects require more or even less in the process.
Either way, it’s simple: It’s important to note and keep track of how every individual of the team works with the others. Make clear what the goals and expectations are for each member.
1) Unrealistic Expectations
Many expect that 100% of the team’s time will be booked. As much as you may wish it were true, it isn’t at all.
In fact, if this is the expectation, it can hurt you and the project. Having 100% of staff utilization is almost impossible.
With sick or personal leave, breaks, and company-wide sessions, even 90% is unlikely.
A good percentage to plan for is about 80% availability. Normal percentages are at about 80-85 percent.
That said, estimating low isn’t a bad thing, especially if everything hits at once. It is always possible to adjust expectations if necessary.
Reducing hours is easier than increasing hours when they are more than expected.
2) Failure to Cross-review Task Requirements
A good starting point for cost estimates and development timelines is a cross-review of the key task or project requirements.
Many projects need some members of the team to work on different platforms. This will require the team members to work together and cooperate with one another.
Difficult situations can arise if there is a lack of cooperation. For example, if an iOS developer and the backend developer aren’t cooperating, it can cause some issues.
When there is miscommunication or no communication it can result in a huge loss of time. It’s essential that all members of the team are on the same page and working together.
Make sure to carry out a cross-review of the task requirements.
3) Failure to Define an MVP
Sometimes, a minimum viable product (MVP) can result in a beta launch and eliminate waste.
Newcomers to software development may still have to learn that software is never completed or developed fully. They must also realize that what they think they need is not always what they do need.
This can make it difficult to create a realistic software development budget.
Flexible development depends on the idea of a Minimum Viable Product or MVP.
This method supplies enough to get to market and defines the basic priorities.
By stripping it down to the bare essentials, a software project becomes easier to budget for. This is because it is easier to define.
Once the MVP is set and finished, the team can move on with divisions or iterations. This will help to develop the application to full-service.
It will then fill the needs of both users and the business itself.
The iterations may have their own budgets. This makes for a more fine-tuned software development budget overall.
It will also help to create a more solid and accurate budget. Accuracy is more important than making a start-to-finish comprehensive software development budget.
4) Failure to Secure Funding for 150% of the Estimate
A software development project is never really done. This means that there are more ideas and features than the budget can cover.
There is a risk too of unexpected costs. For instance, the team might uncover things with unknown complexity that increase costs.
To meet this issue and protect yourself, it’s important to cover 150% of the ballpark estimate.
Of course, it’s always better to spend too little than too much. Allocating 150% of the software development budget doesn’t mean it’s necessary to spend this amount.
Instead, it offers protection from spending too much and becoming undercapitalized. In effect, it provides some wiggle room.
This makes the estimate and budget more realistic in real-world scenarios.
5) Allowing Stakeholders to Think Any Work Is Free
In a stakeholder’s mind, proposed timelines, deadlines, and budgets are set in stone. They may think that they have now paid for these features.
A stakeholder might start to think that there will be no further costs. Or they may think that any increase to costs will only be due to changes made.
The stakeholder needs to understand that features aren’t finalized or guaranteed until completed. This will help them to be more involved in the decision-making process and the project itself.
They’ll have a large part in tradeoffs and making adjustments. They’ll want higher priority items to be done first, and less important tasks done later.
Throughout the process, the stakeholders should be well informed. Always work along with the stakeholders and set priorities together.
6) Failure to Factor in Tax
Another easy mistake to make when making a software development budget is not factoring in tax.
Sometimes companies will work with clients who are not required to pay tax. So, when working with clients who do pay tax, it is easy to forget to factor this in.
Although tax may not make or break the budget, it can cause some budgeting problems. It can eat away at the profits too.
To avoid these problems, always include tax in the estimated budget.
7) Incomplete Scope Definition
Scope changes almost always occur, adding expenses to the project.
A good thing to remember is Murphy’s Law – whatever can go wrong, will go wrong. Not having a full picture of the scope beforehand can cause many issues during the project.
It can lead to wasting time, money, and resources. Failure to have a clear scope can also result in missing the client’s objective.
Efforts to fix the problem often invite scope creep from the client. This is due to a lack of clarity regarding the scope creep before the project begins.
So the problem now becomes the fault of the company, not the client and their indecisiveness. If this happens, there is nothing that can get the project back on track with the budget.
8) Failure to Control Scope Changes & Creep
When managing and controlling a large project, communication is vital. Good and frequent communication will help the project to flow smoothly.
Confirm requirements and over-communicate with stakeholders. Use client portal software to manage all communication with clients more efficiently and keep them updated about the project. This is essential for everything to stay afloat and on-track.
At times, changes and adjustments in scope are necessary. The team may discover this via testing and/or a change in the business strategy.
They may agree to make these adjustments in order to reach the business goals.
Scope creep refers to any unplanned changes in scope. Common causes of these changes include:
- Incomplete requirements
- Expansion or increase of requirements in scope
- Stakeholders decide to take the business in a different direction
Make sure to be as inclusive as possible when writing out business requirements. Try to include every potential stakeholder.
Using the correct collaboration tools in this step of the process is crucial.
9) Failure to Implement Maintenance Costs
Most people focus on the writing and designing of the application. The costs, implementation, and costs of maintenance afterward are often things that are in the back of their minds.
But these can cause big problems such as technological debt after about three years. The way to prevent this is to have the right scope of work.
That said, the project budget should include:
- securing the quality of the whole product (Quality Assurance)
- maintaining the server framework and infrastructure
- automated tests for system elements
- updating plugins and libraries (minimizing vulnerability to attacks)
10) Failure to Allow Time for Research
Formalizing evaluation and research times are key to developing better cost estimates.
Estimating is not an easy job, especially for those who are new to it. Making it even harder is the fact that the tasks may be completely new to the assignees.
In these situations, the project manager can choose between two courses of action. One is to rush to complete an immediate estimation which would be a total guess.
Or two, set a time limit to complete an investigation.
To reduce the risk of an inaccurate estimation, it is important to do the proper research. This could even affect whether a certain task is undertaken or not.
It may be that it would be better to update the business’ project priorities.
It may be necessary to adjust a task’s value to bring it in line with the business’ perspective. This is also based on the resources needed to complete the task itself.
These resources may include the time and effort of the development team.
11) Treating Estimates As If Solid Numbers
Sticking to a fixed price too firmly and being completely inflexible is a bad thing. It’s necessary to take an agile approach to help the development of the application.
It is a given that adjustments will be necessary throughout the development and duration of an IT project.
Being prepared for such changes financially and as a company is crucial. If not, this can cause the company to waste time and money by creating additional expenses.
In the estimating stage of the project, the team may suffer from a division of needs.
Members of the development team may have reservations about giving estimates. But stakeholders will likely want some solid numbers to work with.
The estimate isn’t much more than an educated guess. Unfortunately, it is often viewed as a firm number that isn’t supposed to be exceeded.
If it is, it could seem as though this has become a “runaway” project. Needless to say, this can cause a lot of other issues.
12) Attempting In-House Development
Some companies decide to develop an app on their own.
It may seem like this is the cheapest way of developing an application. In fact, it’s the most expensive method of doing so.
This is because software development requires so many different things. These include specialists, tools, and even experience in software development.
To run even the simplest of projects requires the following:
- project manager
- developer
- backend developer
- analyst
- testing engineer
- designer
- front-end developer (needed in most instances)
If it is one of the main channels for working with clients, it would make sense to switch to in-house development. This is also true if the work on it calls for several permanent specialists on the company’s side.
The Time and Money Different Features of Software Development Require
For any company, software development is a substantial investment. Depending on the kind of application, it can sometimes cost tens of thousands of dollars.
So, there’s no easy way to calculate the cost of each variable of the project. A mobile application with a limited number of simple features can cost up to $80,000.
A somewhat complex application can be $80,000 to $150,000. For example, it could be an application with mobile and web functionality or a customer-oriented service app.
The most complex software that you can have developed can cost up to $1 million.
According to Clutch, businesses that have developers located in the United States or Western Europe have higher costs for their development projects.
This means that these developers are serving large corporations or enterprises. These include Skype, Lenovo, Thomas Cook, Mercedes-Benz, SAS, and FlixBus. Businesses like these offer bigger development budgets.
Labor costs in Eastern Europe are generally lower. This includes labor costs in tech fields like software development.
A skilled developer’s rate ranges from $35-50 per hour. Notice these hourly rate comparisons:
- North America – $150/hour
- Western Europe – $110-$300/hour
- Eastern Europe – $20-$50/hour
- Central Asia – $15-$25/hour
- South Asia – $30-$100/hour
- South America – $20-$55/hour
Although geographically close, software development costs for Eastern and Western Europe are very different. Countries such as Serbia, Poland, Ukraine, Romania, Hungary, Estonia, and Moldova are included in this region.
FAQs about software development budget
1. How much should we budget for software development?
Depending on the size and complexity of the project, the amount of experience and expertise of the development team, and other factors, the cost of developing software can vary significantly.
It is crucial to take into account every aspect of the project and build a reasonable budget around those aspects.
2. What factors should we consider when creating a software development budget?
Project scope, timeframe, resource availability, development approach, and project complexity are a few things to take into account while making a software development budget.
It is also crucial to take future technological changes and ongoing maintenance costs into account.
3. How can we estimate the costs of software development accurately?
Accurate software development cost estimation necessitates a full comprehension of the project’s requirements and scope.
It is crucial to involve essential stakeholders in the estimates process and to base the estimate on historical data and industry benchmarks. Accuracy can also be increased by routinely assessing and revising the estimate in light of actual development.
4. What are some common budget overruns in software development, and how can we avoid them?
Included in typical software development budget overruns are scope creep, insufficient planning, and underestimating the project’s complexity.
It’s crucial to properly identify project needs, set up a reasonable timetable and budget, and use agile development approaches to adapt to changing requirements in order to prevent these overruns.
5. What is the typical breakdown of costs in a software development budget?
Depending on the requirements and scope of the project, a software development budget may have a different cost breakdown.
However, common cost breakdowns could also include expenses for staff, computer software and gear, educational programs, and continuing maintenance and support.
6. How can we balance the need for quality software with the limitations of our budget?
Focusing on necessary features and functionality, giving testing and quality assurance first priority, and when appropriate, utilizing already-existing technology are all necessary to strike a balance between the requirement for high-quality software and budgetary constraints.
Working with a qualified and experienced development team can also help ensure that quality is not sacrificed due to financial limitations.
7. How should we prioritize features in our software development budget?
A detailed grasp of the project requirements and the demands of the main stakeholders should serve as the foundation for prioritizing features in a software development budget.
Prioritization should prioritize crucial features first, with less important features added later if funding permits.
8. What are some cost-saving strategies we can use during software development?
Using open-source software, cloud-based infrastructure, and whenever practical, reusing current technology are all examples of cost-cutting measures that can be used when developing software.
Additionally, by improving efficiency, adopting agile development approaches and putting automated testing and deployment into place helps lower expenses.
9. How can we measure the return on investment (ROI) for our software development budget?
Setting up specific project goals and objectives and monitoring how the project is progressing in relation to those goals over time are necessary for calculating the ROI for a software development budget.
Analyzing user input and adoption rates, as well as assessing the effect of the software on business outcomes like revenue and customer happiness, can all be part of calculating ROI.
10. How should we adjust our software development budget over time as project requirements change?
It is necessary to regularly assess project progress, including continual examination of budget and scheduling restrictions, in order to adjust the software development budget over time.
When project needs change, it’s crucial to consider how the changes will affect the budget and schedule and make the necessary adjustments while keeping an eye on quality and crucial features.
Ending thoughts on typical mistakes with software development and budget planning
Everyone wants to save money, especially when it comes to a large investment like a software development project.
The right way to save on this investment is to reduce development costs. This can happen at various stages of development.
The trick is not to lose any quality during that time. This requires optimizing certain processes while not forgetting other tasks.
Staying on track to achieve all the company’s goals can be a challenge. By avoiding these common mistakes, success will be within reach for you and your business.
Making an accurate and realistic software development budget is the key.
It’s impossible to predict the future, but good planning can help. Avoid the pitfalls that hinder success.
Accurate planning for the complex work of software development can lead to success.
If you enjoyed reading this article on software development budget, you should check out this one about how to write an RFP.
We also wrote about a few related subjects like how to hire a web developer, ALM tools, hire a web development team, application lifecycle management and web development companies in Serbia.
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