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How to Estimate Software Development Costs

How to Estimate Software Development Costs

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Updated: March 23, 2022

In a world where most interactions with consumers happen virtually, there is always scope for a business to develop custom software. There are several open source options that are more economical, no doubt. However, customized software gives you a competitive edge because your competitors do not have any idea about what to expect in terms of services that you are capable of offering.

Custom software development gives you an undeniable advantage as you can pioneer various online services and even manage your backend more efficiently. If you are planning to create your own unique software, there is one thing that you must consider- the budget. It defines your software capabilities because the more unique the end product, the higher the cost.

The cost of developing software can go from $5K to over $125,000 depending on the project itself. There are many factors that you must consider in order to estimate the final cost of your project. Here is a complete guide to help you decide how you must proceed with your idea.

The Factors Involved in Estimating Software Development Costs

When you ask for an estimate, there is a process that every developer or organization carries out in order to give you the final quotation. Here are the main factors that are considered:

Estimating-Software-Development-Costs

 

  • The Scope of Work
    A large part of your cost depends on the scope of work of your project. Every deliverable or constraint in the process will add to the cost. Defining the scope of work accurately is the best way to get a precise estimation of your cost. 
  • Design and Development 
    After you define the scope of work, the software must be designed and then developed. It begins with wireframing and the development of the sitemap. Following this, the visual elements are put in place. Based on this, the coding process is planned to make your static webpage a working one.There is one process which is time consuming and expensive. This is integration with the existing software and migration of the data. You must consider the R&D involved for the team to get familiarized with the data structure, user authentication, API etc. Even when you are developing a brand new software, there is a considerable amount of data migration that adds to the cost.
  • Testing and deployment
    A rigorous and streamlined testing process is crucial to the development stage. Testing ensures that broken links and bugs do not compromise the quality of your product. It also plays an important role in the timeline, mitigating production issues that only add to it. 
  • Size of the software
    This is one of the primary drivers in the cost estimation. The larger the size, the more the cost as you have more screens or pages, longer codes and more effort involved. There are three software sizes that are usually considered when making the final estimate on the cost:

    • Small sized application- less than 20 pages
    • Medium sized application- 21-40 pages
    • Large sized application- above 40 pages.
  • Complexity
    Let us take the example of login to understand what complexity of the software means. Now, you can provide the login option with just an email and password. You can also integrate social media for the user to login directly through their account. The more features you want to integrate, the more complex the software. As a result, the rates also increase.Besides this, you also have the complexity of design, data analysis, data migration and others that are taken into consideration while estimating the cost. Iterations may also add to the cost of software development.
  • Timeline
    In case you have a very strict timeline, it means that the company that you have hired for the job needs to expand resources in order to deliver. Naturally, your cost will go up in order to accommodate the time constraint.
  • Outsourcing or in-shoring
    These are the two options that you will have when it comes to selecting the team that will work on your software. It is one of the biggest factors influencing the overall budget of your project. By outsourcing the project, you can reduce the cost by almost 40%. This is because of the gap that exists in developing and developed countries when it comes to software development. The countries that take the lead in software development outsourcing are India, China, Mexico and Ukraine. They offer the most competitive rates which can bring down the overall project cost, while giving you a top notch final product.You also have one final option to reduce costs, which is to hire a freelance developer. However, in this case you do not have the luxury of tight deadlines because it is usually a single individual working on a software as compared to a team that you can work with when it comes to outsourcing or inshoring. Additionally, individual freelancers do not have the experience that you can expect from a trained team in most cases.

The Process of Software Development Cost Estimation

After the factors are taken into consideration, the following steps are taken to give you the final cost of the product:

  • Setting goals for the software: This is the most important step to understand the scope of work, the time and the effort involved. A detailed meeting to analyze software goals accurately and breakdown the high-level requirements into more basic ones is necessary to create an estimate.
  • Documentation: A detailed business requirement document is drafted for verification. Once both parties have agreed upon the requirements of the project and the deliverables, the milestones are set. Each of the milestones is given a set of features with fixed deadlines.
  • Final costing: After the document is created and the cost and time estimate is fixed, the development project itself can begin.

Estimation Techniques Used

There are different techniques that can be used to get a more accurate estimation of the project cost:

  • Optimistic, Realistic, Pessimistic Method: Before you begin working, it is recommended that you create an optimistic, pessimistic and realistic estimate with respect to the timeline of the project. The optimistic one will be most expensive as it will put most resources into work. The pessimistic one will take longer, but will be cheaper. Based on the budget available to you, you can decide which one works best for you.
  • Top Down Estimation: This estimation is carried out by members in the senior management position who have more experience with software development. This method uses trends and data based on similar projects carried out in the past in order to estimate the cost. This method is useful when you already have a very clear picture of the vision of the final project.
  • Bottom up method: This is a more detailed and time consuming process where every detail of the project is analyzed. This is where each requirement is defined to provide a range of estimates. Individual team members analyze the costs based on the tasks. This is usually considered the more tangible and accurate method to estimate software development costs.
  • Analogous estimation: This is done by using historical data from similar projects. It needs no statistical adjustment or data manipulation. This is done by experts based on the existing data without actually calculating the numbers per say. You need cost and hours data from a similar project.
  • Estimation tools: There are many software estimation tools like Microsoft Project and Concerto that make use of statistical tools and estimation applications in order to give you a clear picture of the exact cost. These tools can also be very useful in the planning stage of your software development project as they list the tasks and the goals methodically. You can even accurately manage the portfolio of the project using various built-in templates and tools. They also have sophisticated analytics and time management tools that can simplify the most complex projects into easy steps.

Approximate Costing For Software Development 

Here are some estimates based on the size of the software:

  • Small sized application- These projects include single feature softwares or prototypes that are more basic and simple. They will cost between $5k-$10K
  • Medium sized projects: These are applications with over 20 screens and critical features, software development and a unique MVP. Development of these projects cost between $10k and $40K
  • Large sized or enterprise software: These projects include complex functionalities, data migration, third-party integrations and a lot more. They cost between $40K and $100K.

These costs are based on outsourcing the tasks. Inshoring costs are higher and are based on various factors like your location, minimum hourly fees etc.

Conclusion

Whether you plan to outsource your software development project or wish to hire an experienced in house team, Bitcot can help you find the best options to suit your budget. We bring to you years of experience and a large professional network that allows us to breakdown all your requirements and find the most feasible solution to help you get the top notch outcome that you desire.

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    Raj Sanghvi BitCot CEO

    Author: Raj Sanghvi

    Raj Sanghvi is a technologist and founder of BitCot, a full-service award-winning software development company. With over 15 years of innovative coding experience creating complex technology solutions for businesses like IBM, Sony, Nissan, Micron, Dicks Sporting Goods, HDSupply, Bombardier and more, Sanghvi helps build for both major brands and entrepreneurs to launch their own technologies platforms.

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