5 Tips to Help You Budget for Your Software Development Project

You're sitting in the office, the boardroom, at your desk or even just your kitchen table, and you have that ah-ha moment. You've decided to develop software for your company and your users.

The creative juices flow, and you get excited about the opportunity, but then it hits you.

You have no idea how to budget for a development project of this scale.

You've heard the horror stories about projects coming in way over budget or companies realizing that their software is never done and continuing to throw money at it for all of eternity to fix deep bugs or add new functions and features. 

But worry not! With a few simple steps and some intelligent planning, you can build yourself a responsible software development budget that helps put your mind at ease as you push forward with your development project. 

In this article, we will walk you through developing a budget to make sure you aren't spending unnecessary time and money on your software project. The following steps, tips, and tricks will help take the guesswork out of budgeting and keep you and your company on track with your dream software project. 

1. Estimate VALUE and IMPACT of Your Project! 

It's essential to start your software development budgeting process by estimating the value and the impact of your planned software development. To assess the value of the project, ask yourself, “How much is this worth to me or the company?” On the flip side of the equation, you should ask yourself what impact the development will bring – in other words, what benefit the tool brings to the organization or end users' operationality. 

You and your company can assess value and impact in many ways, both tangibly (financially, in customer retention terms, etc.) and intangibly (reputation, customer satisfaction, etc.). The following points are questions to ask yourself in the early stages of software development budgeting.

  • Will this development generate additional revenue?
  • Will this software project increase the overall usability of our products?
  • Does the proposed software project solve a problem for our customers?
  • Does it assist in helping us differentiate ourselves from competitors? 
  • Will the project improve customer relations and experiences?

These questions will aid you in assessing the software project's business practicality by determining what you hope to earn, save, or improve with the imagined or finalized piece of software. Otherwise, you will have no way of knowing whether the project makes good business sense.  

2. Understand Internal Costs 

Now that you have gauged what value the project will bring and what impact it will have on you, your business, and your users, it's time to get to work on crunching some numbers. To complete this step, you must understand precisely what you will be spending and what you will be spending it on.

It's essential to have a holistic understanding of what the development will cost you internally. This includes estimates of:

  • Marketing expenses
  • Ongoing development expenses
  • Long-term product support
  • The costs of complex internal resources

This process can be done both internally or externally, depending on your experience and staffing abilities. Once you have estimated all of your internal costs individually, you can combine them and develop a budget range based on your assessed needs. 

Understanding the value and or impact of your project from step one and knowing the internal costs will allow you to decide if the estimated value of your development falls within your predetermined budget range. This in turn will answer the question: will the gains and benefits exceed the project's estimated cost? In simpler terms, are you making a wise financial business decision on behalf of your organization? 

3. Secure FUNDING or More Aptly Extra Funding!

No business, project or development can survive without funding. Once you have decided that your project adds value that exceeds the internal cost, you need to secure financing. Like anything, it is better to be safe than sorry – which is why it is recommended that you book more funding than you expect you need. 150-200% of your initial budget is wise.

The reality of developing your software is that there will always be new ideas down the road and unforeseen expenses and challenges that pop up – hence why it is best to be over-prepared financially. It's important to remember that you can always make tough decisions down the road to cut costs and remain on budget. Finding more room in the budget would be much more difficult if you haven't set aside sufficient funds. 

Just because you secure additional funding, it doesn't mean you have to spend the funds. It will, however, ensure that you will be prepared for any unexpected disaster and will not be undercapitalized during the development of your software project. 

4. Consider a Fixed Project Budget for the First Phase of Your Project

Now that you have determined that there is value in pursuing your project and you have secured the necessary funding to bring your software development dream to life, you should consider sitting down with your advisors and company leaders to set an internal fixed project budget for phase one of development. 

This budget will be guided by steps one and two, noted above, and ideally with the funds you set aside in step three. The goal is to determine a complex number that you will not exceed in bringing the first generation of your product to life. An internal number of sorts forces your team to choose what is most important in the first product brought to market. 

You might be asking why we set a tight and fast internal budget on phase one development when we want to develop the best product possible for users and the company. Well, the answer is simple – fixing a budget will ensure that you build a minimum viable product (MVP) without the project scope being blown way out of proportion. A minimum viable product is the version of your software project that has just enough features to meet your goals and be usable by early customers. An MVP allows you to reach the market promptly and gather feedback for revision from these early users. 

The fixed budget will force you, your advisors, and your team to focus on defining the MVP and building the most cost-effective product that delivers your desired value. This will cause more creativity from your development team to search for trade-offs and alternatives that meet the project scope while maintaining the budget. It will also smartly ensure that because you fixed your budget in phase one, you have additional funds remaining to make changes stemming from user feedback in later stages, including bug fixes and updates. Setting a fixed budget sets you up for long-term success and provides the flexibility you need to make necessary changes as they arise. 

5. Determine What your MVP Looks Like in Comparison to Your Ideal End State

The final tip for developing a responsible budget for your software development is understanding where you're going with the software project. This is much like any project you undertake – you cannot get to a perfect end product if you don't have a clear picture of that product. 

At this budgeting stage, you need to determine what your minimum viable product looks like compared to your end-state software development. This is an explicit recognition that you will likely make revisions as your product continues in its life cycle. 

Knowing and comparing the differences between your minimum viable product and ideal end state will allow you to build your ongoing and long-term budget plan. For example, does your minimum viable product reach all of your future goals? Does it have all the usability features you initially envisioned? If the answer is yes, maybe there is less future expense. If the answer is no, the comparison allows you to estimate what work needs to be done going forward and what costs will be incurred during the project. 

This comparison allows you to revise the product as you go to meet your users' needs and set clear milestones for your ideal end product development. Doing so will ensure your project stays on budget until it's finalized and remains viable to both you and your users. 

Following these tips will help you and your company make your software project dreams a reality while avoiding the heartbreak of long-term budget failure or mishaps. It's important not to let the fear of the unknown that is budgeting stop you as you proceed to develop your ideal software or product. These tips and tricks will help you navigate the budgeting world's unknowns so you can move forward in your development journey with confidence. 

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