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How to Estimate Software Development Project Cost?

It’s critical to make an accurate cost estimate in order to keep the project within the budget. Many costs may occur over a project’s life cycle, and the difference between a successful plan and a failed one might be the cost estimate.

Cost estimation is the approach that considers different factors and calculates a budget that meets the financial commitment required for a successful project.

An accurate cost estimate is key to a software development project’s success. However, project effort estimation is not an easy thing. Projects carry risks, and risks carry unforeseen costs.

This article provides simple yet helpful suggestions for calculating software development costs. We disclose how we approach the software cost-estimating process and share some tips that have helped us nail it down.

Why Are Accurate Estimates Critical to Effective Project Management?

There are several main reasons explaining the importance of an accurate software costing estimation process.

Software project cost in 2020

  1. It allows defining the scope of work to be done and the time and human effort needed.
  2. It allows for understanding what in a project creates the costs and prioritizing tasks more effectively.
  3. It gives clarity to both the development team and the client, helping to define and agree on milestones.

The Types of Project Estimation Techniques In Software Engineering

There are several project management estimation best practices in software development:

  1. Ballpark estimate: This type of estimation model in software engineering is used when the client needs a rough estimate program to get the approximate cost of the project to understand whether he meets the allocated budget or the sum to ask for his investors. In this case, a very rough estimate is provided for a client to decide whether the project is feasible. A ballpark estimate is typically ranged, so if you think the project might cost $100k, you name a $75k-$150k range (-25 percent to +50 percent variance).
  2. Detailed estimate: This is used when the client needs a more precise estimate on the project but is usually provided when the project requirements are in place. This estimate usually contains a quick project plan consisting of cost software development effort estimation and the timeframe needed. In comparison to a ballpark estimate, it can be a range between $90k-$120k (-10 percent to +20 percent variance).
  3. Definitive estimate: If the cost of effort estimation in project management is a basis for a fixed price contract, it should be as accurate as possible. It should include the exact estimate of the software’s milestone and the total project cost. Assuming the project estimation is $100k, it will be $100k + $15k contingency or change for the request (0 percent to +15 percent variance).

At SCAND, we use different project estimation techniques depending on the client’s needs. What stays the same is the high level overview of the project costs that we provide. We break the project down into phases, which helps us to prepare a much more accurate final quote. Learn more about how much it costs to create a mobile app.

How to Do Project Estimation: Factors Impacting Software Development Cost

Many projects are developed in accordance with a chosen cooperation model: time & material or fixed price approach, etc.

It depends on the quality of project requirements provided by the customer and the number of changes expected during the development process.

If there is a brief description or no requirements at all, then the time and materials approach should be chosen as it is difficult to estimate development effort at the beginning, and the changes might occur during the development process.

In this case, the cost of the project is based on direct labor hours spent at a pre-discussed hourly rate.

The fixed price approach is used when there are detailed project requirements or SRS, and the budget and terms are defined in advance at the stage of signing the deal.

During project evaluation, besides standard risks and problems, the development team should provide accurate estimates of the budget and terms, include them in the contract, and strictly adhere to the prescribed terms and the budget during project execution.

Project Scope

A big part of the software cost depends on the scope of the project as it will depend on the number of stages it might include (requirements preparation, prototyping, design, development, testing, maintenance, and support).

Software project cost

Some projects start with the requirements or SRS preparation. During this stage, the overall scope of the project is defined, and team size is determined. Every project requires at least four roles – a Project Manager, a Designer, a Developer, and a QA Tester.

Software development project cost

After the scope is defined, the project creation begins with wireframing and gradually extends to the designers who create the design and visual components. The developers then begin coding and transform the design into working software. However, the cost of the project can be less with a ready-made design.

Project Management

While developers’ responsibilities are clear for most customers, the role and merits of project managers are often underrated.

The roles of project managers often include scope planning and definition, activity sequencing, monitoring and reporting progress, and so on.

They are the guards of time frame estimates, they decide on how to present an estimate for a project, and they are responsible for regular project updates, risk detailing, and documentation management.

Moreover, project managers unite clients and development teams, create a roadmap for a successful project, and keep everyone on the same page of what’s required to stay on track for success.

Quality Assurance

It is important to ensure the quality of the developed app. Thus, thorough testing is conducted during each development stage. Basically, testing is aimed at ensuring that bugs do not creep into production and affect the quality of the software.

Software testing is essential when your software goes through multiple development iterations. Testing can be costly since it aims to find and eliminate all bugs as the software moves further into the development cycle.

In general, the testing phase should include the following:

  • Usability testing
  • Compatibility testing
  • Interface testing
  • Services testing
  • Low-level resource testing
  • Performance testing
  • Operational testing
  • Security testing

Integration With Other Systems and Migration of Existing Data

Quite often, software needs to be integrated with some 3d party systems. If that’s the case, the cost of the custom software project might increase significantly. It depends on the number of systems and the complexity of integration with them.

Typically, with the proliferation of APIs, integration with standard