Software OutsourcingTips

4 Steps to Plan a Perfect Software Development Budget

5 Mins read

When it comes to creating a software development budget, every $ counts. This article accumulated KindGeek’s 6-year expertise in developing software project budgets and ways to deal with all possible off-budget challenges. 

Yuriy Gnatyuk, COO of KindGeek, wrote an article about creating a software project cost estimate back in 2019. Many things have changed since then. Here we’ve gathered some tips&tricks that help us make accurate and down-to-earth estimations in 2021. We will provide 4 tips for how to budget software development that we’ve used in our work as well. 

In this article, we’ll discuss:

  1. Reasons Why Budget Planning Is Vital
  2. How to Plan a Perfect Software Development Budget 
  3. Thoughts on Crafting a Perfect Software Development Budget and Estimate
  4. Tips from KindGeek’s PM for crafting an estimate
  5. The final step-by-step guide

Reasons Why Budget Planning Is Vital

Whenever we work with startups or enterprises –  we strive to be accurate, transparent, and flexible in estimates as possible.

Communicating with a client properly is an important task to prioritize that minimizes the potential for doubt about the accuracy of your cost estimates.

However, it is still essential to create an estimate covering all possible issues and is as accurate as possible. 

How to Plan a Perfect Software Development Budget 

Step 1: Figure Out the Client’s Expectations

The first and most essential step in creating a cost estimate is finding out the client’s vision of the project. 

Every project manager’s dream client provides detailed documentation that describes every element of the future product. The reality is that this rarely happens. In this case, the primary task of an engagement manager, or anyone else who communicates with a customer, is to figure out the client’s exact vision and the primary functionality of a project.

It is not enough to have a general idea of the project. The more detailed the customer is, the more accurate estimate they will receive from the software development provider. If you are unsure how some aspects of a project should work, don’t make anything up. Ask a client to clarify the ideas. 

At KindGeek, we believe that asking the right questions is crucial for the success of the project. The more answers you receive, the better — for both you and the client. 

Don’t be afraid of appearing incompetent when asking many questions when it comes to figuring out a budget for software development. This fear can cost a company’s employees dozens of hours of unnecessary work and frustration and lots of extra expenses for the client. Remember, you are asking questions, not because of your lack of knowledge but because you want to deliver exceptional service and ensure that everything works out well.

If the client comes to us without a clear vision of how exactly the product will look, we suggest conducting a discovery phase. Business analysts investigate the functionality of a future project in detail and its place in the modern market. It allows us to test products before the implementation phase, saving costs and up to 20% of the time for development. 

It is essential to inform a client that the discovery phase will help make a future estimate more accurate and create a more competitive and reliable project.

Step 2: Find Out the Client’s Budget

It is essential to consider how much the client is willing to pay for the project. However, not all clients want to share their budgets with software development providers due to several reasons. 

About 30% of our clients do not want to share their budgets.

One of the reasons for that is that some clients are afraid that a software provider will try to squeeze the most money out of the customer and adjust the project cost accordingly.

However, knowing the exact amount the customer is willing to pay for the development might improve client-company communication in two ways:

1. The estimate will be crafted quicker since the software development provider would meet the client’s budget expectations straight away. 

2. Less frustration and misunderstandings.

If the customer’s budget is too small, we can ignore non-primary functions by creating an MVP before the finished product. This might happen when the customer is launching a startup and is going through the investment rounds. 

About 75% of startups we worked with did an MVP first. 

Step 3: Make an estimate

While the actual estimate does not take a lot of time to craft, choosing the right person to perform this task is essential. 

This person should be aware of all the technical aspects of the project and be skilled enough to estimate the work of developers, designers, and business analysts involved in the project. You might also use a sample budget for a software development project that could be found on the web. 

There are four things to consider when crafting a software development project budget estimate: 

  1. The complexity of the project. 
  2. Software size and type.
  3. The team needed to build a product and their rates.
  4. The time it takes to complete a project. 

Step 4: Evaluate the risks and include out-of-scope expenses. 

No, we don’t try to scare the customer straight away. The risks are evaluated to prepare and inform the customer about possible extra expenses.

It is also essential to include an out-of-scope section while creating a budget for a software development project if you are doing an MVP. 

Thoughts on Crafting a Perfect Software Development Budget and Estimate

“When we’re talking about estimated budget, there are a lot of things to be considered. First of all, the perfect budget should meet expectations: both clients and the company’s. The client should indicate at least the best (optimistic) / worst (pessimistic) case scenarios to understand whether he or his investors can cover this budget. A company should make a reasonable profit.

The budget should consider possible risks and their cost. It also needs to consider project timeline (duration), team composition, and its members’ salary reviews. It should include a contingency to cover estimates uncertainties. It also should not be 100% fixed – there should always be room for a change because we don’t live in constants, but much rather in variables.” 

— Oleh, PM at KindGeek 

Consider Kindgeek Your Trusted Healthcare Software Development Partner

KindGeek is a software development company that builds innovative and secure technological software solutions. We match our engineering culture to your core values to deliver custom software development services to startups, SMB, and enterprises. 

Product-oriented

We want our customers to succeed with industry-shaping products we build together. We research the market, analyze data, and apply design thinking to develop relevant and problem-solving solutions. 

People-first

We recommend starting every project with a discovery phase. We learn about the needs and habits of product users to build easy-to-use, user-oriented products.

Innovative

At KindGeek, we believe in innovations and startups. We constantly add new technologies to our stack to turn the most challenging idea into an innovative medical software development project.

Final Thoughts

​​The process of creating an estimate is both an art and a craft. Apart from developing software, this is one of the essential processes. 

Despite the complexity of this process, using this checklist we’ve compiled will help ensure that you have everything required for the most accurate estimate possible:

  1. Find out client’s expectations
  2. Figure out the client’s budget
  3. Let the most professional team member craft an estimate
  4. Evaluate the risks and include out-of-scope expenses

How to create a software development project budget plan?

To create a budget plan for a software development project, follow these steps:

  1. Find out client’s expectations
  2. Figure out the client’s budget
  3. Let the most professional team member craft an estimate
  4. Evaluate the risks and include out-of-scope expenses

What percentage of a software development budget should be testing debugging?

It largely depends on the complexity of the project, however, our experience shows that around 30-40% of a software development budget takes testing debugging. 

How to determine project budget for software development?

There are several techniques for determining the budget for a project. One of the most popular ones is breaking down the project into small tasks, determining what technologies you will need, and then estimating the time for each task and the average rate of developers needed to complete the project. 

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