Software development budget estimation

Software development budget estimation

What are common mistakes when creating a budget for the project?

As most citizens of the digital world know, software development is never completely “finished.” Software development teams develop new features and fix bugs. They add functionality. In this environment, how should companies budget for their software development projects?

An unlimited budget would make many teams very happy. But that approach has pitfalls. If the team works without much oversight or customer input, they may waste money. They might create features that the customers won’t use.

Some organizations might seek to keep their budgets as small as they can get away with. This might force the development team to cut corners. Choosing the lowest bid almost never proves to be the most intelligent choice.  They might miss out on creating the best project possible. Spending more, in a smart way, usually leads to better returns on the investment.

Thinking about what to develop next? Read on top bespoke software solutions and best SaaS ideas. For even more options check out our list of web application ideas.

Organizations also need to consider whether or not to outsource their project. Outsourcing offers flexibility in workload and hours and demand for outsourcing increases every year. If your firm hires an in-house engineer that person can only work a certain number of hours a week. You might have too much or not enough work for them. With outsourcing, the outsourcing firm can easily provide the services you need in a flexible way, giving you more or less help as required.

Related post: In-house development vs outsourcing software development

Step-by-step project budget planning

  1. Estimate the value of the project
    Smart organizations should first decide the value of their project. How much money do they hope to generate or save with the software they want to develop? Then they can decide how much they will spend with clarity and focus. 
  2. Analyze costs and estimate
    Ask the agencies you plan to get estimates from to meet with your team. Get their specialists to identify requirements. When they set out the requirements, have a meeting with their account manager and team lead so you can express your expectations. Then the agency will compile a brief. The agency then attends to technical details and gives you a complete production schedule for approval.

When you start collecting bids from external agencies, pay close attention. They should provide detailed bids that show a depth of knowledge. External agencies that submit vague or opaque bids should raise your suspicions. Inspect the bids keeping in mind how much value you place in the project.

  1.  Add some cushion to your budget
    Even the best teams might not estimate with great precision. Make sure you have extra capital on hand. Custom software development continues on long after the project seems “finished.” New bugs and fixes appear well after the project launch.  Having the extra funding means that you will not hesitate when it’s time to add an improvement or new feature. Nobody wants unfinished software or software that doesn’t work as expected.
  2. Set a budget for the first part of the project
    The team should focus the first part of the project on developing a minimum viable product (MVP). A minimum viable product keeps the team from scope creep. It allows them to make sure their work delivers value. Once the team has released the MVP to beta testers, they can get feedback. The beta testers’ feedback will guide their next steps.
  3. Streamlined release of functional software
    Now the team needs to add the required features and functions that will deliver value to the stakeholders and customers. Avoid adding too many features, think in incremental terms. Focus on quality and positive user experience. You can always build on a great project. A project filled with too many features that don’t work as designed helps nobody. Keep software development Agile and simple.

Tips for creating a budget for software development

  • Plan out the entire project in advance
  • Create a realistic timeline for the software development project
  • Document the requirements in detail
  • Seek out expert advice about what technologies you should employ
  • Test early and often, bugs found early in the process are cheaper to fix
  • Set priorities based on customer needs and wants

Read also: App development cost breakdown in 2022

Common mistakes when creating a software development project budget

Unrealistic expectations

Keep in mind that adding to the scope increases costs. If you start out with a small project that gets progressively larger, the budget will increase. If you outsource you help to avoid this dreaded scope creep. External agencies will spot areas where the project details need more fleshing out. They will give valuable feedback about the actual scope of the work. When you hire an external agency you get an estimate of the precise number of hours the project will take to complete.

The biggest mistake an organization can make in budgeting a software development project is setting unrealistic expectations. The software development team will not devote 100% of their time to the project. 100% staff utilization does not happen in the real world. People have holidays and sick days. Smart organizations plan for about 85% staff availability.

Maintenance and upkeep budget

Organizations fail to set budget funds aside for maintenance and implementation. They focus too much on design and code, not enough on running the software after it’s implemented. This causes problems down the road.

Cross-functional cooperation

Teams that fail to get input for cross-functional groups face great challenges. If the front-end developers and back-end developers cannot communicate openly problems will arise. Cross-functional teams should begin working together from the start to ensure everyone focuses on the project requirements.

Not creating MVP

Teams that skip creating an MVP (Minimum viable product) face an uphill battle. Projects and solutions rarely go exactly as planned. Creating an MVP gives the team a simple way to define parameters and provide value to the end-user.  Working from an MVP means that the team works in an Agile fashion. They can budget for future Sprints with greater care and accuracy.

Not having cushion

Organizations should always allow for budget overruns. In the real world, a software development project could go as high as 50% over budget. Unexpected costs arise. The customer may want new features not in the budget. Having set aside 150% of the budget doesn’t mean that they must spend it, however. If the software development team delivers on-budget, great. The other 50% goes back into the bank account.

Ill-defined scope

Ill-defined scope also causes trouble. Scope creep and change always happen. Organizations should keep their objectives clear to minimize the possibility of scope creep.  Scope creep and change lead to wasted resources, time and money. Scope creep often happens because of incomplete requirements. Make sure your requirements have shape and clarity before the project begins.

Software budget estimation at Blocshop

At Blocshop, we have mastered the budgeting process. Blocshop works with Agile processes to deliver results on time. Our expert engineers, designers and developers will help you see your full potential. We help our customers reduce costs up to 30%. Blocshop optimizes resources and helps you keep your headcount numbers low. We know how to plan and spec out our projects so we deliver successfully completed projects. To get some insights on how Blocshop works read our recent article on app development for Fairphone.

Read more on how much the software development cost at Blocshop depending on the size of the software, technology is being used, and team size. If you need the custom price estimation, fill our software price calculation form to tell more about your project so we can get back to you with a detailed cost breakdown.

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