Software development cost: assessing project estimates and budget risks

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Cost efficiency Outsourcing dev team

Software Development Cost: Assessing Project Estimates and Budget Risks

Cost efficiency
Outsourcing dev team

Software Development Cost: Assessing Project Estimates and Budget Risks

10 min read

Choosing the right software development team is crucial for project success, and the evaluation process plays a pivotal role. However, various factors contribute to the complexity of this process, ranging from the granularity of project details to the often misleading hourly rates. This article clears key considerations for a comprehensive project evaluation.

Table of Contents

Detailed functional tasks in project evaluation

The inclusion of procedural tasks is a must

The true cost of development hours

Developers qualification
Who's the performer?
Hourly rate v.s. total budget

Low development rates secrets

Conclusion

Detailed Functional Tasks in Project Evaluation

The project budget:

should not be a single figure;
should not include items with an extensive number of hours;
includes preliminary preparations;
encompasses the rate per hour and the total number of hours.

The project evaluation is not simply about numbers. First and foremost, it should outline the specific parts the project will contain or the functionality implemented to achieve the project goals.

Firstly, examine how thoroughly the software development team has outlined their functional tasks in your project assessment.

At ITUniversum, we engage with diverse technology stacks, allowing us to elaborate on tasks for up to 8 hours per operation in any project. Additionally, during the project implementation phase, we prefer breaking down tasks into even smaller components, with 8 hours per task being the maximum duration. Simultaneously, we frequently encounter third-party teams providing estimates of 40, 80, and even 160 hours for a single item.

Responding concisely to the query, "What will you do at work during the month?" Your answer should be declarative. To attain results, you must have a detailed plan. In this context, why would your performer state in the estimate, "I will work on your feature for a month"? Don't you find this peculiar? Avoid such estimations.

If a performer takes more than 10 hours to complete a task, they often fail to comprehend or lack the motivation to understand the task's intricacies.

Consequently, you might be asked for an additional budget, or the job will be completed 50% of the time, leaving you to pay the remainder simply because you agreed.

However, we acknowledge that not every contractor will describe their project functionality in detail. Without a contract, providing a detailed estimate poses a risk that you might take that estimate to another development company offering a $5/hour lower rate based on that estimate.

But there's a compromise!

The contractor can provide a total project budget estimate while meticulously planning part of the project. This approach reveals the methodology the performer employs in the assessment.

It's essential to note that most projects share similar elements (task blocks). A professionally operating company possesses several, and sometimes dozens, evaluation templates. Therefore, you can consistently gauge the company's expertise by analyzing their assessment of your project. In a high-quality project estimate, all planned operations should be detailed and segmented into small tasks, at least for one part of the project, if it's a preliminary assessment.

The Inclusion of Procedural Tasks is a Must

Another significant indicator of a qualitatively performed project evaluation is that the assessment should encompass implicit work, including procedural tasks (not just the application development but also various preparatory and auxiliary tasks).

Let's consider a scenario where you've tasked a contractor with developing a mobile application. While working on the application, the performer must design the database, establish the environment, and set up the framework and servers (test servers, live server, and development server). Each code upload to the test server requires an iteration of testing, and for the product to go live, it must successfully pass the entire test suite.

How does the performer account for these tasks?

Sometimes, they include these tasks in development, which can exceed the budget. Other times, they might not consider these tasks, risking the product's quality. The absence of essential processes can lead to issues and hinder scalability.

Sometimes, they include these tasks in development, which can exceed the budget. Other times, they might not consider these tasks, putting the product's quality at risk. The absence of essential processes can lead to issues and hinder scalability.

The True Cost of Development Hours

The next consideration involves the cost of an hour of development proposed by the contractor. This is one of the most commonly used criteria for evaluating a service provider, yet it's also a substantial psychological trap for investors. However, the cost per hour alone doesn't convey much information. In most cases, it's an overall average market value, sometimes driven by the company's eagerness to attract clients or influenced by the financial and management department's perceptions of the company's service value.

The crucial aspect is to compare the anticipated result with the price you'll be paying. What complicates the estimation of the cost per hour?

Developers Qualification

The first challenge is that individuals vary greatly, and in the realm of IT, there's no definitive standard for the proficiency level of specialists. While theoretically, such standards exist, in practice, the majority of companies witness Junior professionals evolving into Middle specialists within a year or even less.

Imagine going to a hospital where they tell you, "This is a good doctor." Inquiring about the doctor's experience, you hear, "He graduated from university a year ago and has been practicing for a year, with three surgeries to his credit." Your reaction might rightly be, "Nonsense!" While doctors and developers may not be directly comparable, the logic is evident.

Recognize that one developer may write code swiftly but introduce more errors. Another might work more slowly but still produce the same number of bugs. A third may work quickly and with few mistakes, while a fourth may work slowly but with almost no errors.

This reality should be acknowledged when comparing commercial offers from different contractors.

Who's the Performer?

The second pitfall is regarding time slots. You purchase the developer's time, conduct tests, hold interviews, and engage in correspondence, but the one who ends up working is usually the cheaper one. Validating this can be challenging, as you lack mechanisms to verify. However, you can inquire with your contractor about executive oversight in case of quality or deadline concerns.

Hourly Rate v.s. Total Budget

Now, let's address the third aspect. Is it better to pay 10 hours at $30 per hour or 3 hours at $50? Have you done the math?

All these factors contribute to the key reasons that may compromise the quality of work from service providers. It's crucial to bear this in mind when quoting an hourly rate. Asking questions about developers' qualifications and assessment criteria makes sense. Evaluate the project estimate in terms of both the hourly rate and the number of hours. Always assess what you're paying for!

Low Development Rates Secrets

The development price was at the top of our survey regarding the most critical criteria for selecting a development company. However, the issue is that the development rate often becomes a trap for the customer. The hourly rate is a constant battleground between software companies, a significant point of contention between developers and customers, and ... the most meaningless parameter when choosing a developer.

Regrettably, contractors' lack of diligence and professionalism, inadequacy, and carelessness have rendered the hourly rate parameter meaningless.

Yet, it still influences clients when selecting a service company, and customers often neglect to take a calculator, spend a bit of time, and comprehend the cloud-built number (or numerical manipulation, as you prefer).

Recently, we secured another tender for developing a complex software product. Three bidders were in the running, each appearing convincing and professional at the pre-sale stage. Our rate was higher than that of the other two vendors, but our winning was not magic.

I urged the customer to take a calculator and use Google. In 10 minutes, he estimated developers' salaries in the regions where our competitors' employees were located. I then suggested adding the tax burden and internal costs (an approximate percentage) to the sum of net wages. As a result, the customer saw that the rate charged by other vendors was half as low as the roughly calculated sum of their costs. How could this be?

The main "secrets" behind low development rates are:

You're not buying the time of a professional developer but of a student or trainee. He needs training, and his salary is small. Under these conditions, the company finds it unprofitable to add a mentor whose cost would be x2 from the calculated amount. This approach can lead to disastrous consequences for your code.

With a low rate, the company covers its costs by inflating the number of hours. Likely, the development company lacks experience in your market or technology. It believes that by charging you a million+ hours at this rate, it will cover its deficit. You might end up with an x3 timeframe, receiving just the real market rate, but satisfied that you bought cheap.

A software company outsources its work to someone else who costs less. Once the outsourcer receives payment from your contractor, they may ignore all requests. You may encounter problems with the project, either missing deadlines or receiving unsupported code.

You're sold the hours of a skilled developer, but those hours have already been sold to five other clients. The result may lack quality, as the developer's priority is to deliver the job on time, not necessarily ensuring it is fully functional, supported, or finished.

In unfortunate cases, you may encounter a combination of these options, leading to project failure and the depletion of invested budgets. The cost per hour holds little meaning in contemporary scenarios. A project budget can be priced at a rate of 1 cent and a million hours, or it can be priced at a rate of $1,000 but at 3 hours. Can you feel the difference? Be careful!

Always rely on simple logic and basic calculations when evaluating offers from development companies.

Conclusion

In the dynamic landscape of software development evaluation, a nuanced understanding of critical aspects is essential for ensuring project success. From deciphering functional tasks and embracing implicit work to navigating the complexities of hourly rates, each element plays a vital role in shaping the trajectory of a project.

Clients must remain vigilant, employing logic and basic calculations to appreciate what they are truly paying for. As we conclude this exploration, let's recap the key aspects covered:

1

Ensuring thorough outlines of functional tasks for a comprehensive project understanding.
2

Recognizing the significance of procedural tasks beyond development to achieve project goals.
3

Evaluating the actual cost of development hours and understanding the complexities associated with varying proficiency levels.
4

Navigating potential pitfalls, including inexperienced developers, inflated hours, outsourcing, and overcommitted professionals.

1

Ensuring thorough outlines of functional tasks for a comprehensive project understanding.
2

Recognizing the significance of procedural tasks beyond development to achieve project goals.
3

Evaluating the actual cost of development hours and understanding the complexities associated with varying proficiency levels.
4

Navigating potential pitfalls, including inexperienced developers, inflated hours, outsourcing, and overcommitted professionals.

This guide contains illustrated main ideas to help refresh your memory quickly:

Guide: The “secrets” of low development rates.

With over 15 years of expertise in custom software development, ITUniversum is ready to provide a professional assessment of your project. Contact us today to discuss any of your ideas!

Sergei Isakov | COO, Co-Founder

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