So, you’ve set out to develop a customized software product. And the first question you’ll fret over is “Is it going to break the bank?”. Indeed, when we’re talking about development cost estimation, predicting the weather feels like a more doable task.
Besides defining major expenditures, you’ll also have to factor in a lot of subjective variables into the estimate that can be devastating for the project. Unforeseen requirements can set off unclear results as the project size increases.
However, according to business analysts from DevoxSoftware, clients can avoid unnecessary costs and make an accurate estimate provided they have a profound knowledge of cost estimation types and techniques.
This article will share the foundations of development cost estimation and dwell on the main techniques needed to calculate the price.
Cost Estimation: A Short Primer
From the project management standpoint, cost estimation is the prognostication of financial and other resources required to deliver a project within a defined scope. Cost estimation is applicable to each element needed for the project—from materials to labor to overhead costs. As a result, stakeholders have an accurate number that determines a project’s budget.
Different Types of Estimates
Before making the final decision, software specialists run the numbers for your project to provide a calculation. Therefore, if you want to answer the age-old question about development costs, you also need to understand three main kinds of estimates. They include:
Ballpark or rough estimate
This type refers to a rough numerical estimate that defines an approximate cost range for your projects. It serves as a starting point of future collaboration and answers whether your project is worth pursuing.
Budget estimate
Budget estimates are second-guessings that are taken to lay out the future strategy and resources. Typically, a client sets the budget range to see what can be done for this amount.
SoW (Statement of Work)
This estimate is the definition of the work to be performed. This type of estimate includes various elements such as the general work scope, objectives, tasks, performance requirements, etc. Based on these variables, the contractor makes an accurate estimation.
Now, let’s go over to the software cost estimation techniques that are typically used to produce a good estimation for your project.
Estimating Techniques
The accuracy of an estimate is as changeable as the weather throughout the Project life cycle. However, estimates are vital to any project, since they help put together a schedule, define your resource needs, and draw up a budget. Overall, there are four main techniques used to calculate the costs.
Top-down
Top-down estimates are usually derived from upper-level management who uses information or prior experience to determine the project duration and costs. After identifying an overall cost estimation for the global project properties, the project is then divided into various low-level components.
Bottom-up
In contrast with the first technique, the bottom-up method is more detailed and involves cost estimation at the lowest level of detail. These estimates require more time and effort but compare favorably to other techniques due to more accurate predictions.
Analogous estimation
The technique is based on comparing the current project to the similar one that took place previously and drawing a comparison in proportion to that. It is often used to calculate a particular parameter when the current information is limited or unavailable.
Planning Poker
This one is a game-based estimating technique used by Agile teams. The product owner or a customer presents a specific feature to the estimators at the beginning of the estimation session. All of the team has a series of cards that contain a value like 1, 2, 3, 5, 8, 13. If the chosen value is similar or the same among the players, then this number is taken as the estimate.
Top Common Project Budgeting Mistakes
With all that constitutes managing a project, making sure things go smooth, on budget, and within the specified timeline could be overwhelming. But it can become even more challenging if you fall victim to the same mistakes.
Top Mistakes Clients Make
Having an incomplete scope definition
Scope changes are unavoidable when building a software product. They do take up some of your budgets, but the team anticipates a little adjustment to the scope and takes it into account at the very beginning. But if a client wants to squeeze up some more functionality in the middle of the road, that’s asking for trouble.
Requirement volatility
Accurate, complete, and document-supported requirements are the soul of the project. On the contrary, ambiguous software requirements result in far-flung implications and overspend as the development cycle kick starts. And whereas this peril can be eliminated within the Agile methodology, Waterfall teams will have to build the whole project from scratch if the requirements change.
Top Mistakes Vendors Make
Inaccurate cost estimate
Inaccurate cost estimation is detrimental to the whole project. The development can then be canceled due to the cost overruns and waste of resources. The assigned team will have to work with zero increase of costs until completion and the vendor will have to invest his own resources to complete the critical tasks.
Forgetting risks
Neglecting risks is another common mistake that generates huge cost variations. Without a transparent risk assessment, teams cannot envisage the possible fallback and end up with cost overruns.
Under Qualified team
Software development cost estimation has to be performed by a knowledgeable specialist who has hands-on development experience. If you assign a newly-minted software engineer to this task, expect to end up with over- or underestimation. Also, you shouldn’t forget that the level of seniority is another important factor that influences the costs. Therefore, you should avoid handing over the estimation to an assorted group of junior and senior developers, since they price their services differently.
The Bottom Line
When it comes to software development cost estimation, there’s hardly a clear-cut answer to what defines a cost for every case. Some costs may lie on the surface, whereas others may show up as a nasty cold sore. To avoid the latter, make sure you evaluate the costs to a tee and avoid the common mistakes mentioned above.