How to Estimate the Cost of Software Development in 2022
Start with the foundation
There are some important factors to consider if you want more than just to spend money on an app. Will it serve your end-customers well? Will it help you provide better products and services to them? Or will it help you become more effective with your operations and processes? Will there be a positive impact on your ability to perform well financially? The list could go on. Yet, this is the purpose of technology (to bring about improvement) and any conversation about a budget to develop the app should always start here.
Once you’ve considered the impact of your software product, the next important factor to clarify is how your product will achieve that impact. What are the workflows and product functionalities that will allow its users to obtain specific outcomes required for the said impact? Then prioritize them. You might be tempted to include a series of functionalities yet, breaking them down into must-haves in the first version and those that you can wait for in future versions will allow you to think of a lean and agile development approach.
Prioritizing functionalities will also dictate when/how your budget is allocated to the features that will help you launch your product and gain traction. This is critical for startups that are cash-strapped and especially those who borrow funds from angel investors and venture capital companies who need to prove to investors they know what they’re doing.
Finally, prioritizing product release components can help you clarify what you want your product to be when it “grows up”. Call it product vision, or the ideal version of your product. While this may seem ephemeral to some, it is highly practical for determining your budget today, and for the long run. For instance, if you want to launch your software product on a global stage at some point expecting millions of users, you need to make a few strategic technology choices that will require budgetary considerations. This can very well help you avoid rework or possibly rewriting the application using a new tech stack to accommodate for the switch from local to global market reach.
Down to the numbers
With your priorities clear, now comes the work of your tech partner’s project manager and technology solution architect as they gather everything you’ve shared with them into a Scope of Work (SOW).
To estimate the cost of software development, they must first determine all of the necessary tasks, time, and resources required to deliver the scope of work. This can be done in a variety of ways, but useful steps include discussing with senior software developers in the team to tap into their experience with previous similar projects, factoring in certainties and assumptions, and transcribing everything into a project management software to determine duration, milestones and their budgetary allocations.
When discussing resources they will include things like overhead costs, compensation for all involved in the partner’s software development team (developers, project manager, architect, quality assurance, etc.), licenses, fees, hardware, and other relevant expenses. All of these will allow them to come up with an estimated budget for your software product. Whenever you get a quote, it’s usually an “all-inclusive” rate. This is especially useful as you compare with the budget required to do it inhouse or with other providers. Always use an “apples-to-apples” comparison to include all associated expenses that go into a budget.
Project budget estimating is an important part of budgeting and can help you and your technology partner ensure that your software development project stays on track and within budget. Here’s how to choose a software development company.
- Fixed-budget software development. This model is used for projects that have a fixed scope of work that allows you to agree before starting the project with your technology partner on a set of deliverables against a commonly agreed budget. This is many times preferred if you have already gone through an extensive discovery process and little is left to assumptions. Example scenario: minimum viable product development.
- Time & material budget. Under this model, the budget based on the number of hours worked multiplied by the hourly rate of contracted resources. If you do expect your scope to evolve and its complexity isn’t quite clear as of the beginning, the time & material approach provides greater flexibility for setting sprint-based, quarterly or even monthly priorities for the software development teams. In this case you can set a regular periodic budget that caps the number of hours. Example scenario: modernization of an existing software product.
- Agile budgeting. By far the most flexible model, it creates the perfect setting for a close-knit collaboration with your technology partner. You establish deliverables and allocate budgets for them based on your priorities. This model is especially helpful if you have tight deadlines and don’t have many budgetary constraints. Example scenario: hybrid development teams composed of client and technology partner team members.
