Plan the perfect (not an estimate) software development budget

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Setting a software development budget can be challenging, but it is important to have accurate numbers so as not to fall into uncertain estimates. If you want to know how to plan the perfect budget, read the following lines.

Plan the perfect (not an estimate) software development budget

No matter where it ends up or what goals it sets out to achieve, almost every software development project begins the same way. Someone asks, What is all this going to cost?” And on the heels of that all-important question, it is “How long will it take?” “Will we need to hire a big team?”, “What services will we need to procure?” “What needs to be prioritized?”

The list goes on ad infinitum but truthfully, these questions all stem from the same basic set of critical stakeholder concerns. The top decision-makers need to know what they are looking at in terms of resource allocation and they might not have the technical knowledge or the type of industry experience that is required to come up with answers on their own. In other words, they have a vision but they need help with the details.

Technical teams must step up to the plate on budgeting

Generally speaking, stakeholders do not like unanswered questions that represent holes in their plans to innovate or grow their business. It leaves their big dreams vulnerable to risks like cost overruns, missed deadlines, and even failure.

So if you are a CEO, CTO or an IT leader, you will not like hearing, “We don’t know” as an answer to your budget planning questions. You want a number and a clear timeframe and you want them to be reasonably accurate. Important decisions will be made that will depend on these answers  – questions like whether the project is worth doing in the first place.

The stakeholder problem with estimates

Plan the perfect (not an estimate) software development budget

We have all heard the alarming stats on software project failures – industry watchdogs and analysts have been documenting tragic tales of over-budget, out-of-time software projects since the 1980’s, virtually from the moment commercial custom software was even a thing. Among the “permanent failures” on record that have gone down in infamous history, almost half were due to “cost overruns”.

In light of this dismal trend of the past thirty years, it is no wonder that, from a stakeholder perspective, nothing moves until there is a good budget in place. And in light of the money that is typically at stake, an estimate won’t do.

Do not miss this video: 10 useful tips for software project estimation

Development teams don’t like making estimates

There is another problem with estimates. It is at this stage of the game that the team suffers a dichotomy of needs: stakeholders need some firm numbers while the development team itself has serious reservations about providing estimates.

That is because an estimate is very often just that—little more than a guess. It is a guess that, for lack of any other type of answer, often somehow gets transformed into a hard number that stakeholders can adhere to… in other words, the guess becomes a maximum. One penny over budget, one day behind schedule and that maximum has been “exceeded” and you have a “runaway” project.

What is needed is a good strategy for planning the perfect software development budget.

Solutions for the runaway software project

Developers can often see the seeds of a blossoming runaway software project from the very start. Whether it is unclear objectives, poor communication channels, inadequate user research, lack of a business analysis perspective or leaving UX to the very end, the list goes on as to how may initial mistakes and oversights can play a role in project failure.

Plan the perfect (not an estimate) software development budget 2

But it takes an experienced eye, one trained in not just the technical aspects but also in operations, marketing, and top-level business concerns, to pinpoint what might be problematic about a software development budget itself. Proper allocation of resources, what to prioritize, when to start marketing the product, and questions that are even more granular come into play, and all have to be accounted for during the budgeting phase.

So what has a decision-maker to do? You will need a strategy to help you take the right approach. Here is a basic one to help you plan the perfect budget.

1.Define an MVP and start with that

One thing that newcomers to software development often have yet to learn is that a software product is never really “done”. The second thing many have yet to realize is that what they think they need does not always turn out to be what they actually need. That might make succeeding at planning a good budget even more of distant dream.

They key is to understand the development process from an Agile point of view. Agile development hinges around the notion of a Minimum Viable Product (MVP). An MVP is just good enough to get to market, covering the most basic priorities that the stakeholders have defined.

Content related: Why you need to have a Minimum Viable Product (MVP)

Pared down to its bare essentials, a software development project is easier to define and thus easier to budget for. Once an MVP is established and completed, the team will use iterations to move closer to a full-service application that meets all the needs of all the end users and which also fulfills all the business goals. Each iteration can then generate its own budget, thus eking out many small perfect budgets as the project moves forward. This removes much of the uncertainty of preparing a full-scale, start-to-finish comprehensive budget.

2.Define the iterations

Plan the perfect (not an estimate) software development budget

Next the MVP is developed using data from its initial release in order to improve upon things for the next round. This helps minimize risks and gives stakeholders plenty of chances to provide their feedback along the way. It also helps leaders responsible for budgeting to parse out the budget, iteration by iteration.


The key thing to note here is that the team should work to establish what resources they will need for each iteration. That involves projecting a weekly, bi-monthly, or monthly “define-build-release” schedule that can be expanded or contracted depending on the priorities set by the current iterative cycle as discoveries are made.

3. Finally, always plan to pivot

Whether it is the timeline that needs to be tweaked, or it is the scope or the budget itself, the cycle-based, bite-sized adjustments mentioned will help prevent a runaway software development project that results in cost overruns, severe scope creep, or a timeline that is stretched so far beyond initial expectations that the project is in danger of becoming irrelevant or obsolete.

Do not miss this: Software estimation, planning, and forecasting

Approaching the budgeting process in this way means your product development team can produce a bid that is more accurate so the big decision makers can make better decisions. In the end, it leads to a better relationship between the development team and the stakeholders – and for the end users, it means a better experience – all in all, success all around.

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