Software budget estimation revealed: How to set a software project budget
Table of Contents
Building software is a significant investment for any business. Even if it’s demanding, it’s still a project – and just like any other project, it needs a proper budget estimation. But how do you start creating a software project budget when you have no clue about software development? Don’t worry, we’ve got you covered.
First, you need to be aware of some common problems in estimating software projects. Most software development projects overrun on schedule and budget because of one thing:
Lack of well-defined project requirements.
If your requirements for a software product is vague or general, the development team won’t be able to determine the scope of work it requires. Your idea for a software product might be brilliant, but it also needs to be as detailed as possible. Otherwise, the success of your project is under huge risk.
Read this article to learn why defining project requirements is crucial for budgeting and get a step-by-step guide to creating an accurate software budget estimation to make your project a success.
Here’s why project requirements are so important
Why do software projects overrun so often? Many reasons can account for that: bad project management practices, unexpected circumstances, or project technology issues. But the most likely risk of overrunning is poorly formulated project requirements.
In such a project, it’s common for product managers or other stakeholders to change the scope so that it matches newly-discovered market needs or other factors. If the development team begins to work on a project that doesn’t have a clearly-defined mission, objectives, and requirements, the chances are high that the planned features change.
Read more: Project Manager Roles and Responsibilities – here’s what you need to know
Changes and additions to software projects on the fly are very costly. New requirements may sometimes contradict the initial ones, incurring even more costs.
In short, developing a solution where requirements are moving is much more challenging, time-consuming, inefficient, and expensive. To avoid that risk, companies that decide to build software need to develop a software project budget founded on well-defined project requirements.
6 steps to creating a software project budget estimation
1. Be aware that estimations are not always reliable
Estimations prepared by software development companies in response to your project brief and requirements are essential for your budgeting process. But remember that several factors make them less reliable than they appear.
For example, estimations are often based on the skills of a particular expert who participated in the estimation process. And that’s a very subjective way of measuring work since every expert has their own way of working and estimating the time it takes to develop a single feature or component. Moreover, IT companies will share optimistic estimates to land the job.
Here’s some good news: a reliable budgeting process helps to mitigate those risks. When asking for estimations, be sure to ask the company to include all the assumptions and risks behind.
2. Decide between two approaches to software project budgeting
To get a realistic estimate on software product development, you need to ask yourself the right questions about your project. You can basically choose between two approaches here:
- Approach 1: Define what you want to achieve and once you have an objective, break the work into smaller pieces that allow a more straightforward estimation. Then approach the development team and ask how much it will all cost.
- Approach 2: Decide how much you can afford to spend on the solution and when you need it to be completed. Contact the software team with this information and let them work out the best way to accomplish your goal based on these priorities.
3. Write your idea down
The first step to budgeting proper is putting your vision down on paper or another medium that allows sharing it with other stakeholders. You may not know much about software design or requirements, but that’s ok. You can still prepare a valuable document that will help you understand how much time and money your project will consume.
When defining your software idea, provide answers to the following questions:
- Who is going to use your app?
- Why will it matter to the users?
- What kind of problem will it help them to solve?
- How does it matter to your business strategy?
- How does it align with your business objectives?
4. Ask for project estimates
Once your project requirements document is ready, you can send it to software development companies and ask for estimates. Some of them may want to have a follow-up call or meeting with you.
Ask development teams to qualify the numbers they give you. The idea here is to get different descriptions with their asking price. There are many different ways to build software, and this point is all about discerning different approaches and their associated costs.
5. Compare the estimates
Note that the estimates you receive won’t be standardized. That’s why it doesn’t make sense to compare estimate A with estimate B in terms of costs and choose the cheaper option.
Read every estimate in detail to understand what each of them is proposing to create. Will the development use an existing platform or write a custom application from scratch? Will they be outsourcing a part of the work? How many hours of work will the project take? And what is included in those hours?
6. Be aware of your priorities
Depending on your sector, you’ll be aiming for different things when building software. For example, digital products in the finance industry focus on compliance and security. For a B2C mobile application graphic design and UX are far more important.
By now you have a clear idea about the kind of product you want to build. By doing in-depth research into your target market, you will discover and define your priorities further.
Consider what you need to be investing in at this point. Is it the look and feel of your app, high-transaction volume processing, or mobile responsiveness? These priorities will impact the cost of software and help you pick the best software development company for your project.
Create a software project budget that guarantees success
A successful software project budget will be based on a clearly-defined mission and business goals. By following these steps, you will know your priorities regarding product features but also the schedule, quality, and scope of the project.
A well-written budget also set parameters of quality and proposes a realistic schedule. The software development company will, in turn, provide you with estimations that include assumptions and risks. That type of software project budget will set your company for success.
Are you looking for a team of expert developers skilled in preparing accurate software project estimation?
Get in touch with us; we help companies make the most of their resources for creating quality software that brings them tangible business value.
This may interest you:
What’s the software development process (and how it looks like)
Developing a Minimum Viable Product? Here’s a 3-Point MVP Checklist
Website development cost – how to estimate web development projects?
How to estimate product backlog effectively
Everything you need to know about Sprints in project management
Project Manager Roles and Responsibilities in a software project
Product Owner Roles & Responsibilities for Software Projects
Software development outsourcing – is it worth it?
Thinking about the MVP? RAT could be much better