How to Determine a Software Development Budget?







One of the best times in an entrepreneur’s life is when they get their idea; an idea that changes the world, that warms hearts and minds, and that takes his business, and his world, to the next level. And one of the most painful times is when he has to match his idea with a budget!

Of course, the cost factor is important, but that cost doesn't dictate the value of your idea. In this article, we'll take a look at how to budget that will support your idea, give it momentum rather than hold it back, so nothing gets in the way of your dreams and inspiration.

A matter of cost is often an unloved point in the software development process. You’ve also probably noticed that the cost range for custom software development is extremely wide.

The easiest way to estimate software development costs is Time x Hourly Rate. For cost estimation, you need to multiply the development time by an hourly rate of all roles involved in the project.

Do your homework

Yes, the words “dreams” and “inspiration” are followed by the word “homework”. Indeed, preparation and information are the prerequisites for an informed budget decision.

Preparation: comparisons and lessons

Homework consists of two complementary elements: preparation and philosophy. Preparation allows you to make comparisons to situate yourself.




 Ideally, you compare apples to apples, but sometimes there are no two comparable apples. Keep this in mind when comparing "similar projects", and avoid assuming that one outcome guarantees another. In addition, ask yourself how your business will maintain its operations despite the overload of an additional project (software or otherwise), since a software development project could disrupt your daily activities. The industry average accepted cost to maintain software is roughly 15-20% of its original development cost. Successful projects rely on strong collaboration − which, in turn, will take time from your staff. Finally, learn from your previous plans (and those of others), and always keep them in mind.

Philosophy: cost insurance and value insurance

The second element to completing your homework is to define your budget philosophy. There is a misconception that the existence of a budget represents cost insurance (not to mention its impact on the certainty of deadlines!) Consider whether you are really looking for cost insurance, or rather value insurance. Value is cultivated and refined over time - do you want to position your team to seek value? The value orientation does not mean a blank check; it simply means that you are willing to revisit your priorities and fine tune your budget as the situation evolves.

A good software development plan never follows the plan. However, if you do your homework well, you will be able to make decisions mid-project and make adjustments based on new facts, sound reasoning, and new goals, rather than constantly putting out fires.





Now let's identify the elements of a software development project:

Work, including travel costs: This includes the work of your company or that of an external consultant. Remember, you are paying for expertise in addition to coding: Technical advice isn't free, and in fact is the most important part of your project.

Equipment, Software Licenses: So many options are available to you that you need to clearly define the goals and understand the context. For example, free open source software may be suitable in some cases, but not in others.

Impact on Daily Activities: Your project will remove your staff from your daily activities. And, once the project is delivered, you will need to budget for training and adoption costs for the new system until it is fully integrated into your business.

Recurring maintenance costs: You should budget between 10% and 30% of the initial project cost per year. When putting together your checklist, consider the many factors that will affect your budget for each of the following:

· Direct and indirect costs
· Fixed and variable costs
· One-off and recurring costs
· Desires and necessities

Building a checklist is easy; it is difficult to match it with realistic estimates.




This is where your preparation pays dividends: your comparisons will help you estimate the initial outlay, and the lessons will help you make your assessment of risks and contingencies. Finally, the most important remains the acceptance, by all, of the budget and of the intrinsic value of the project. It will be necessary to form a united front when it comes to collecting quotes.

Collect quotes

Now that you have a preliminary budget for your software development project - for your idea! - you can start collecting quotes from companies and suppliers.

You will receive a whole range of quotes, including a few surprises. Take a look at these surprises: Some may be testament to things you forgot or underestimated, while others are nothing more than "upgrades" or scams. Or, they could indicate that these companies or suppliers have misunderstood your philosophy, or that they are basing their quotes not on your needs, but theirs. Take this opportunity to review your philosophy.

Finally, remember that these quotes are only a part of the total budget - that's why we've calculated the indirect costs and the impact of your project on your day-to-day operations.





Keep dreaming!

We started this article by talking about your big idea. The energy and passion that you felt when visiting your idea should be bottled and shared throughout the project. The daily grind of managing a budget risks clouding your original vision, which could distort it.

There is a good balance between, on the one hand, staying within the budget − even if it is set in stone − and, on the other hand, bringing your idea to life; your preparedness and leadership will help you succeed on this tightrope walk.




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