When planning to develop software, one of the vital questions that come to mind is ‘how much will it cost?’. Cost estimation in software development is crucial as it helps to determine and control the project budget. This estimation is a necessary procedure and is needed before initiating development. Cost estimation aims to anticipate the quality, quantity, and cost of resources required to execute a software development within the project scope. An accurate estimation outlines the assumptions behind each cost, as well as inclusions and exclusions and related risks, to bring the project live. With a detailed breakdown of all project costs, stockholders and executives can better understand and make a better budget.
Nowadays, there are several tools and techniques in use to make an accurate cost estimation. There are mainly three types of estimations in use, such as:
Ballpark Estimate or rough estimation gives you an ad hoc idea about expenses by providing a potential range of expected costs for your project.
A Detailed Estimate is a technique used for smaller, well-defined projects, where the outcome is well defined and a short-term one.
Flexible Estimate is the most common approach used to estimating and building complex software.
A Definitive Estimate is more accurate and a time-taking process. This estimate is generally prepared in the planning phase or late phases when you have the detailed project scope in hand.
Each type of cost estimate offers varying degrees of accuracy, and each of them is designed to be implemented in different circumstances.
What are the obvious cost heads in software development?
Here are the key components to consider when making a cost estimation of a project.
Cost towards employee salary and welfare
Having the exact team is an important criterion for project success. For expense estimation, first, you need to determine the specific roles and team size. A Project Manager, a Developer, and a QA member are the essential roles for any project—depending on the project requirement, you may also need a business analyst, UI/UX, Architect, etc. If you don’t have sufficient talents in-house, you need to hire people, which increases the project cost. The recruitment expense will add up with the regular employee salary and welfare cost.
Product and equipment cost
After team selection, next is hardware/software resource requirements. Requirement of network infrastructure to dedicated systems, software, cloud resources, license for new users, everything needs proper estimation to calculate the total expense. After considering your available resources and infrastructure, you can accurately estimate the amount you need to have the required infrastructure, purchase or outsource software, licenses, etc.
Choice of platform
Whether the software needs to be compatible with a particular platform (ios/android/web) or with multiple ones affects the cost estimation a lot. Multi-platform compatibility involves the development and testing complexity and increases cost accordingly.
Type of software project
A project can be of different types, such as:
- New Software Development
- Software Modification
- Software Integration
- Web Development
Each type of project needs specific team makeup and a different amount of development effort. For accurate cost estimation, it is important to understand the type of project first. The project type and size, the requirement of human resources, and many other factors help to determine the final estimation.
Project size is vital for cost estimation. Small and simple projects involve lesser expense than large and complex ones. Small projects need minimal resources and are of shorter duration. On the other hand, medium projects are more substantial than a small tweak and involve more resources and interaction with clients than small projects. When it comes to large ones, those involve more complexity and integration with multiple systems, database components, security measures, and logging features. The most complex and expensive ones are enterprise-level projects. Those are almost exclusively built upon an underlying framework and are much more demanding on security, data integrity, logging, and error handling.
When a project involves a user interface and/or user experience design, you need to estimate the cost to have a UI/UX designer in the development team. Even you may need to include 3D visualizers and/or animators in your team depending on project-specific requirements and estimate cost for their contribution.
Development complexity decides the level of difficulty involved in a particular project. The complexity limits the rate at which a project can absorb development personnel and the total resources needed to work on the product development effectively. As per the basic formula of cost estimation (Project Resource Cost x Project time = Project cost), complexity is vital for calculating the accurate number.
An efficient and streamlined testing process throughout the development stage is indispensable. So, the allocation of a full-time or part-time dedicated tester is important to assure the quality of your final product. Whether manual or machine testing or both are necessary for a project, you need to estimate accordingly.
Location of staff
As remote working is the new normal, you can have resources from anywhere on the globe, but the salary structure of your resources may change depending on where are they located. For bigger projects, stakeholders and clients prefer to have resources from different timezone to have a 24*7 development cycle. Mad Devs is a supremacist of the remote-first culture and conducts the most asynchronous communication both with the client and within the relocating team.
Hidden costs of software development
Apart from the obvious expenses, some hidden expenses may affect your estimated budget and even lead to losing some time.
Lack of communication
Insufficient communication between the development team and real users can lead to misunderstandings about the actual requirements of the users. There may be some conceptual difference, which leads to many change requests and even rejection of the final product. This involves lots of rework, an extension of the development cycle, and even misuse the costly resources.
Even if you are outsourcing resources, the capacity of your service partner to meet your urgent requirements is also crucial. Lack of clear communication regarding their capacity to offer resource and service solutions can extend development time. It can cost a lot.
Cost for documentation
In the case of resource outsourcing or remote work culture, detailed instruction for developers, testers, UI/UX, and technical instructions is vital. For a distributed team, even clear communication requires proper documentation of problems and their desired solution. These kinds of additional efforts involve lots of manual labour and time that expand the expense.
Software security conundrum
Software security is a huge concern and comprises different components that increase the project cost. For software, data, and infrastructure security, you need to calculate the expenses of Firewall, Antivirus, Antispyware, Network Security, and so on.
Paying your staff for maintenance
For the smooth running of the development cycle, it is essential to keep everything (systems, network, database) always up. So, around-the-clock maintenance is necessary, and there is a chance of missing the maintenance cost during estimation.
To have human resources for different parts of the globe involves various legal concerns, and their mitigation processes also need budget allocation. There are several other legal issues related to software licensing, documentation, copyright regulations, etc., which need cost estimation too.
How to deal with hidden costs?
To avoid the burden of hidden costs, it is essential to have well-defined protocols to follow and do proper planning for that. Here are some tips to consider.
Take time to understand users
One of the fundamental steps to deal with the unexpected and hidden cost of software development is understanding the actual requirement of users. Without making assumptions, it’s crucial to understand the users’ expectations. It will help you satisfy your users at the first attempt and minimize the chances of costly rework. This approach helps you to maintain the expected cost of a project.
Verify the competency of the vendor if you’re outsourcing
At the initial planning phase of a software development project, you need to agree on ‘what is to be built in-house’ and ‘what is to be outsourced’ to have a specific cost estimation for that. For any kind of resource outsourcing, you need to evaluate the capacity of your tech support partner, cloud partner, and so on. Make sure they have the infrastructure to provide essential support and on-demand additional support. Your tech support service can also take charge of regular maintenance and management of IT infrastructure and individual systems at an affordable cost, and you can easily include the charges in your cost estimation.
You can also outsource help for legal issues like software licensing, documentation, copyright regulations, etc. They even can provide support with cybersecurity and network security concerns. And, you can get everything as a package service at an affordable cost.
Don’t miss on a product road map
It is essential to create a product roadmap, review it with the client and iteratively prioritize features. You also need to test your hypothesis before finalizing and share that version with your customer to get feedback. It helps you to get timely feedback and measure the behavior of the clients/users. This will help you to incorporate changes during the development phase and save you from the cost of rework.
Having an MVP is a good idea
Instead of providing a complete product to your users, create a minimum viable product (MVP) and get feedback from your users. It should be a small and controlled experiment. Then you will be able to get an exact idea of their needs and have a better chance of satisfying them faster with less investment.
Invest in a good QA team
A high-quality QA team is essential for any project as they are the final line of defense between your product and the market. A QA team helps you to offer a perfect product to your users.
Security is important too
Implementing sufficient security measures in software development for the initial stage is important. Otherwise, the penetration of cybercriminals can lead to massive losses. Over VPN, DevSecOpS is a valuable cultural shift for better security.
Every software company has to find the hidden costs in software development and ways to resolve them. It is good to anticipate all the possible problems you may face during and after the development cycle and make an all-inclusive cost estimation. Detailed and comprehensive cost estimation can save you from hidden costs of software development.
Chief Strategy Officer at Mad Devs and Co-founder & CTO – GoDee, with over 15 years of experience in IT. He is a co-founder of several successful projects. Oleg knows all the intricacies of doing business with his mind and shares life hacks and useful edits with his subscribers on social networks, blogs and podcasts.