How to Accurately Estimate Cost-to-Build: An App and Software Development Budgeting Guide
Accurate software development cost estimations are critical to staying within budget on any project–if an estimate shoots too low, a business could end up with a piece of software that can’t pay for itself, or remains completely unfinished.
Thoughtful, intentional quotes also allow businesses to filter out digital product ideas that are not worth the investment, or that they simply can’t afford.
To mitigate the risk of failure and loss on investment, it’s crucial that you get as accurate an estimate as possible on both timeline and budget before starting any software development project.
The Danger of Premature Software Development Cost Estimates
The Cone of Uncertainty, a concept created by Barry Boehm and Steve McConnell, illustrates the degree to which an estimate can stray from reality depending upon the stage at which that estimation is made.
Estimates produced before detailed analysis or prototyping can be off by as much as 400%. That variance decreases to 100% during the Detailed Requirements Phase, but does not reach a much safer 20-50% level of variance until the User Interface Design phase.
How to Estimate Software Project Costs in 4 Steps
There is a lot of work that should go into defining a product before the timeline and cost of software or app development can become clear. Here are the steps we recommend taking to get there:
1. User Research
How do you know you have the right product idea? Always validate the likelihood that your product will succeed with users before assuming you know what to build. We recommend conducting contextual inquiries, user interviews, or surveys to solidify your understanding of how and in what context people will be using your product.
2. Product Strategy & Minimum Viable Product
Develop clear value propositions and a market strategy for the product. In order for a product to be great at something, difficult decisions must be made to determine where to underperform relative to the competition. Based on the results of market research and competitive analysis, prioritize features and clearly define the minimum viable product (MVP). Answer the question: what features do we need, at the minimum, to make this product successful with users? Everything else gets placed on the dream list.
3. Prototyping & Usability Testing
Create a working prototype with the features included in the MVP. Then do lean testing to validate the concept and refine as needed. Testing a prototype with five real people who fit the target audience is enough to discover what areas of the design need to be refined before moving on to development.
4. Cost & Timeline
Using your tested and refined prototype, you can now create a product roadmap organizing features and capabilities of the product by functional area and release timeframe.
Now it’s time to accurately estimate cost and timeline for the project. Without research, prototyping, and testing, product development moves forward based purely on assumption. Starting development without first testing assumptions puts software development at a high risk of budget failure and overdue deadlines. All it takes is one or two discoveries that conflict with the initial concept, and suddenly you’re faced with really tough decisions. Avoid unnecessary surprises. The key to accurate budgeting for apps and software development is validating the concept ahead of time.
Create Your Own User Journey Maps in Sketch or Illustrator
Maximize ROI on usability tests and foster smart decisions for new product development with user journey maps.
Access the free step-by-step guide and handy template for diagramming user experience.
Project Pricing & Planning That’s Responsive to Change
Estimating is not a one-time event–it should happen repeatedly throughout a product’s development lifecycle. That’s because change happens in every project. For most product developers and their clients, “done” is always a moving target. That’s because we build digital assets for changing environments with new competitive entrants and shifting market dynamics. “How” is also a shifting goal post, because software development teams aren’t static, costs and budgets change, and the available tools are constantly evolving.
For these reasons, we have found that software and app development budgeting and planning methods must be designed to respond to change.
Point Sizing: Estimating Time & Effort on Individual Features
To keep software development within budget and on track once the project begins, teams estimate time and effort on individual features using point sizing.
Once the size and scope of a development project is understood, it can be assigned a certain number of points. The Fibonacci sequence is commonly used to assign the proper number of points to a project. On this scale, the next number is identified by adding the two numbers before it. The scale starts with these numbers:
1, 2, 3, 5, 8, 13, 21….
It increases from there. If a client wants a button added to a form, that might rank as a 1 on the point-sizing scale. This means a single developer can handle the task in a matter of minutes. If a development project ranks higher on the timeline, it may require a new or bigger team and a longer timeline to complete.
The use of the Fibonacci sequence offers development teams and clients a little flexibility. If the temptation is to rank a certain project as a 13, but there are several unknowns, it may instead be a better fit at 21. When you round up, there is wiggle room to respond appropriately as the details of the project emerge.
Organizing the Timeline with Sprints, Stories, & Epics
On agile development teams, work is done in “sprints” where the project is broken down into more manageable chunks. Dividing work into sprints not only helps developers focus on quality with each feature, it also allows them to deliver finished products to clients in increments.
Sprints tend to last about two weeks, and are the smallest divisible unit within the product development timeline.
A story is a high-level way to describe a software requirement. The story contains enough detail for the developer to understand what needs to be implemented on the project.
Like in literature, an epic is simply an extended story that can often be broken down into several stories. An epic may even contain multiple projects. Depending on the point size, an epic may take several sprints to complete.
Rough Order of Magnitude Estimates
Due to compelling research on best practices for software development budget planning, we recommend visually prototyping digital products before estimating cost and timeline. That being said, we recognize that a rough-order-of-magnitude (ROM) estimate is often a precursor to approving a prototyping project.
At Praxent, we use a custom-built ROM Estimator to analyze technical requirements and compare the proposed product with comparable systems from our 19 years of experience. This exercise allows us to generate multiple staffing and project scenarios for the proposed product. We incorporate these steps into our ROM estimations:
- We identify separate work streams for the project based on logical and functional differences among the major activities.
- We perform a team-based estimating exercise to ensure the process isn’t overly biased by a single estimator.
- Depending on a variety of factors, we apply contingency buffers that account for unknowns.
Get in touch with us today to find out more about how we can help you save time and money with better software development budget planning.
Keep this guide for your team’s reference by downloading a PDF copy here.