How Much Does it Cost to Develop Software?

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Sergey Lobko-Lobanovsky
Chief Executive Officer, Geomotiv
Published: Feb 23, 2021

Software development cost estimation is integral for creating a project without missing deadlines and breaking budgets. However, being able to explain the logic behind the estimates is crucial as well. If you want to find out the cost of developing software, you need to get in touch with an experienced IT company

Today, we are going to navigate you through the issue. After profoundly investigating the topic, we realized that the best way to predict comparable prices for the project is to go with two possible approaches. One of the methods is based on the effort necessary to complete the project and when the client is ready to put numbers in the budget and duration. Let’s review and consider them in more detail further in the article.

Two Approaches to Estimating Software Development Costs

1. Based on the effort necessary to complete the project

Some software development companies estimate the cost based on the effort required to complete the milestones. The idea is to define the necessary functionality and decide how many specialists can implement it. Consequently, it is essential to multiply per-specialist expenses by the number of persons required for the project.

2. When the client is ready to put numbers in the budget and duration

In this case, the client approaches the vendor with an available budget and sets clear deadlines. Together, they determine what functionality it is realistic to incorporate into the software given the constraints. Consequently, it becomes clear how many specialists can cope with the project and how much time is necessary for its execution. 

The critical point is that certain constraints define every project out there. According to the Iron Triangle of Objectives, the quality of the overall project requires balancing the three elements:

Iron Triangle of Objectives

Projects have typical constraints in scope, cost, and time, with quality as a central element. Focusing on one point of the triangle impacts the other two issues and a central theme accordingly. To put it another way, if you expand the number of features without adjusting the other two vertices, it will put the quality at risk.

Failure to set a balance among three constraints can put the project on hold at the planning stage. Thus, the vendor and the client should discuss whether it makes sense to start the project. They need to decide whether it is possible to achieve the client's goals within an available budget. 

It is one of the paths to success as it begets alignment of expectations, which we will discuss further in the article. But now, let’s consider the issue of software development costs taking into account the effort to develop the functionality.

Approach №1: Methods of Effort-Based Estimation

Here are some popular project estimation methods, their essence, and opposing sides:

1. Expert judgment

This method implies groups of experienced consultants or tech personnel with the necessary expertise in similar projects. They have to share assumptions and judgments about what they think a new software product will cost. The final goal is to integrate individual estimates into one system.

Drawbacks:

  • Agreeing on project estimates is a time-consuming process. 
  • Inaccuracy at the stage of requirements gathering increases the time for assessment.

2. By Analogy

This method involves fetching relevant historical data about similar projects. A critical component is the search and selection of similar projects according to the specified parameters.

Drawbacks:

  • Serious discrepancies with original projects may arise since a similar project takes place in different circumstances and terms.

3. Bottom-Up

The idea is to break down the project into individual tasks and estimate each of them separately. If you want to produce a more accurate estimate, it is necessary to factor in additional coding activities. 

In the table below, you can see how long the additional components of the development process take concerning programming:

Development ProcessEstimated Time
Design30%
Testing20%
Stabilization30%
Management20%

For instance, if you allocate 100 hours for development in a project, testing will take 20% of the time or roughly 20 hours. The accuracy of the estimate follows the growing number of details.

Downsides:

  • Failure to include all the required elements in estimation can result in unexpected costs.

4. Function Point Analysis (FPA)

Using this method, it is necessary to have a list of requirements split into separate functions. Further, specialists classify each feature as having a High, Average, and Low complexity level. Each software feature’s complexity is determined using expert judgment based on the team cadence, statistical, or other historical data. 

Next, to determine the cost of developing software, assign a “weight” (from 0 to 5) to each feature in the specification.

For example:

ComplexityPoints
Low3
Average4
High6

Then you need to create a list of tasks with the corresponding points. By multiplying each moment by the number of person-hours, you can get an hourly estimate for each job. The final step is to sum up these values, giving an idea of ​​the final development cost.

Drawbacks:

  • a steep learning curve; 
  • relatively time-consuming estimation process.

So, let's assume that we have passed the stage of estimating software development costs based on the functionality and the effort required. However, this does not mean that it is time to get down to work on the project.

Limitations of the Approach

Inevitably, the range of question arises:

What happens if the client rethinks their ideas?

Changing project requirements can cause a misunderstanding between a client and a vendor. And above all, it affects the accuracy of cost estimates significantly if the team changes late in the project life-cycle.

What can go wrong?

Even the most elaborately planned projects contain elements of uncertainty. These are potential problems that can lead to delays, overrun of resources, and other critical losses. To avoid or at least minimize the risks of these kinds, we at Geomotiv make estimates based on assumptions. 

The idea is to identify and document all the real threats to project success. For example, mass-market applications require testing for all kinds of users. You can assume that cross-browser compatibility testing should be included in the assessment.

On the other hand, corporate apps generally have a smaller number of unknown values since they target a narrow group of people. Experts can assume that the application will run on Windows on a specific version of Chrome. It reduces the number of testing activities significantly.

Or imagine the review team has just rejected the developed iOS app for some reason. Perhaps the testers did not consider the latest Guidelines updates, or there was an error in the functionalities description. We at Geomotiv ensure an internal formal QA process related to risk mitigation. Our tester thoroughly examines all restrictions associated with submitting an app for the App Store.

It is necessary to take into account particular technical difficulties. For example, a client can decide to enable payments through Stripe at a specific moment. 

Adding such a requirement could mean unforeseen troubles for the project’s success within the defined scope and budget. There is a risk that the volume of work on integration with the payment system will increase. Consequently, the project is sure to run over its initial cost estimates.

Overall, risk management is a separate form of art that requires specialized expertise and additional expenditures.

What happens post-launch?

That’s where misalignment of expectations between the client and the vendor can pose threats to the project’s success.

Any software project requires support once the product generally becomes available. It is basically about bug fixing, development, and adapting the software for real-world applications. In general, the more time you spend on testing the application, the fewer bugs occur per unit of time. 

Cost of Bug Fixing at Different Stages

The cost of a bug detected later in the life cycle of the software grows exponentially. Developers need time and conditions to fix a bug, which can become the most expensive software development part. 

However, it is not an easy task to estimate the effort required to support the product. The methods of calculating the project’s cost indicated above in our article come in handy for that goal. 

Another critical issue is forecasting possible enhancements. It is necessary to decide if to consider newly added requirements in the cost estimation. However, it requires the vendor to guesstimate what additional features your future customers are likely to request. 

If the vendor doesn’t raise questions of that kind, we’ve got some bad news for you. The vendor’s task is not to ask for more money but to help clients understand how much the project may cost in practice.

Considering all the above questions, the primary one arises:

How long does it take to figure out how much time and money is necessary to develop software?

Instead of compiling a list of the required functionality and calculating the cost to develop software using one of the methods, we recommend going from the other side. The idea is to estimate the cost of the project based on the customer's budget.

Approach №2: Putting a Number in the Budget

This type of cooperation implies that the client and vendor agree on the workload and project requirements based on the available funds and specified amount of time. They also determine what part of the budget to allocate to support the project before launch and separately for the post-launch phase. 

The project’s stakeholders split the budget by calendar months. Based on the project’s information, the vendor can estimate the monthly costs per development team. A typical project group consists of:

  • front-end developers
  • back-end developers
  • PM
  • a QA specialist.

The specific count of specialists per category depends on the client and the vendor’s scope and duration. The Agile process is tuned to fit the needs of the project. For instance, if the project scope changes or new priorities occur, the team quickly adapts to new requirements.

This approach to estimating project costs has its pros and cons.

Among the pros we find:

  • There is no need for time-consuming project estimations.
  • The project gets continuous support, maintenance, and optimization by default. It can continuously evolve and receive periodic updates based on the feed from end-users. 

The cons come down to,

  • It is difficult to foresee the final development cost.

Disclaimer: That is okay. Such an approach reflects the real state of things in the development world. 

Take an app like Uber, for example. You can develop a similar system and, depending on the budget, fill it with the functionality that you can cover. An Uber-like application can demand $10,000 and $50,000 and $500,000. The difference is in quality and how many features the team will include in the release. You can scroll up and check out the Iron Triangle again. This is an effect on the product in practice.

A Winning Approach: Dedicated Development Teams

Such a procedure for cost estimating is reflected in our dedicated development team model. It resembles an actual structure of the software development team as if you were hiring it in-house. Using the approach allows you to ensure alignment of expectations between the client and the vendor. It also helps to visualize what can be developed using the available sum of money. 

A dedicated team works exclusively on your projects, just like your in-house team. The only difference is that it functions from a separate office, unlocking numerous benefits for business owners.

In this way, our clients get the opportunity to save on administrative and overhead costs. Our bespoke recruitment services enable us to find and onboard dedicated developers. Consequently, they fully integrate into your company’s processes and serve as an extension of your in-house team.

If you want to obtain a trusted partner ready to align with your expectations and form a view of the desired outcomes, contact Geomotiv’s team. We provide expert, dedicated teams that help achieve the highest quality within the approved duration, cost, and future project scope.

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