Budget in software projects - how and why you should estimate it
"How much is THAT going to cost, actually?" This is one of the questions preceding commencement of every project, particularly in IT. If you want to receive an exhaustive answer to it, that is, one that is going to let you decide whether to invest in a given software solutions, you need to prepare yourself well.
Quo vadis? - define the project objective
What is the objective of the project? Why do you want to implement the solution? Where do you want to find yourself after it is completed? Start with answering these questions. A good practice when it comes to implementing new software solutions is defining the project objective as a perfect situation and only later verifying what can be truly achieved and at what cost.
How to estimate your budget?
If the objective of your project is to improve the efficiency of everyday work in your company – or at least a small part of it – then you can perceive the budget as an investment in company development. In such situation, the point of entry will be establishing the measurable advantage that you want to obtain thanks to implementation of the software project.
Example: generating an annual sales report in your company involves a lot of people which is costly for the company. You might want to implement a tool that is going to help you prepare such a document easier and quicker (and, as a result, cheaper) – those time savings, when translated to money, are going to be a measurable benefit coming from implementation of such a tool. On this basis, you can estimate the initial budget of the project – if you want the tool to start providing earning for itself, for example, already after a year after implementation, you need to assign the amount equal to the report costs for that purpose. The return on investment (ROI) in case of a project depends on the project budget and time dedicated.
Want to estimate your budget for an IT project and its ROI? You can do it yourself using this ROI calculator.
This method allows you to make an initial estimate of the budget for IT project implementation. You will learn its exact amount by collecting the detailed guidelines and preparing the project documentation. It is also a good idea to start with some calculations and an objective indicator that can be presented to the Board in order to explain the need to invest in a software solution in your department.
Analysis and requirements gathering
It is a task for your internal IT department , for an external company/business analyst or a potential software provider. The requirement gathering process depends on the specifics of the project and the company. In general, it encompasses: workshops that enable defining the project objective with the project team and future software solution users, mapping the processes, preparation of documentation and market research here meant as a collection of price information or offers.
A great advantage of gathering requirement with the help on an internal IT department is the relatively low cost of preparation to the project. On the other hand, if you engage in this process people who are not experienced or competent enough, it may result in project failure.
Independent companies or analysts surely will not lack such knowledge and experience. As a result of such cooperation you will get an objective project based on their experience and good practices together with a recommendation of a solution and the best software house for your project.
You can also ask a software development company to prepare the analysis and gather the requirements. Rememeber The stage of gathering requirements is the most important stage of the project and the success of project depends on it. Therefore, both your and your software partner’s involvement should be prioritized and include the appropriate competences:
- on your software partner’s side - project manager, business analyst, UX designer and technical person looking after the quality, feasibility and complexity of the project,
- on your side - representatives of future solution users.
Gathering requirements is time-consuming, so beware of the free-of-charge analysis - they will not carry the appropriate commitment. The illusory savings at this stage will most probably be redeemed by presenting you with a higher price tag on a quote and can even cause a loss of several dozen or even hundreds of thousands of euros by implementing a system that does not even have strict fundamentals to begin with. All the potential holes and mistakes in the logic of the solution are diagnosed at this stage - to prevent the implementation of a system that either needs to be rewritten or constantly corrected which is very expensive. You can see it in the following diagram.
Own elaboration on the basis of the work of M. Żmigrodzki
Project management for beginners: how to turn a challenge into a simple task
Irrespective of who is responsible for gathering requirements, the process takes time and money. You pay for a long-standing experience in software solution building and for being taken out of your comfort zone with questions that reveal the smallest details of your processes. They are crucial for your business and make it stand out in a crowd of competitors. The solution is supposed to support and strengthen them.
Talking about the budget is not so hard
What to do in a situation where you have a pre-established budget for implementation of a given software project? You have 2 choices:
- you tell the software development company about it,
- you do not mention even a word about it.
The companies often decide not to inform the software development company about the budget, treating disclosure of such knowledge as positioning themselves with their back against the wall. You are not obligated to present your cost estimate to your partner, but if you want to receive a rational price estimate of your project, provide them with documentation on which they will be able to base their analyses. If you have the technical knowledge required, you can prepare it on your own. If not, however, it will be safer to take advantage of competences of others (auditor/business analyst) – this will let you avoid blowing the costs out of proportion and suggesting solutions that are not adequate to your objective.
Why is it vital to talk about the budget?
First of all, it saves time – both your partner's and yours. Making the price information usually takes a couple of days (and even up to a couple of weeks in case of a binding quotation!) and involves a lot of people, also on your part.
Secondly, the budget is just another one of the variables in the software development process. There is no single conventional solution that would meet all your needs. Depending on things such as, among others, time within which you want the project to be implemented or the budget at your disposal, you either get a Smart or a Ferrari. Both are going to pursue your main business objective, but... in a slightly different way. By providing your partner with a specific amount, you make it easier for them prepare an optimal proposition that is best suited to your needs (and takes into account the tool maintenance easiness and further development of the tool).
A low budget is not an obstacle
You defined the project objective, specified the benefits you want to achieve and prepared the documentation or maybe even solution prototypes. You show it to your partner. They prepare a price estimate for your application that should include a few stricly defined elements. When you receive feedback, it turns out that the value of the offer does not fall within your budget. What can you do?
- Think agile - like startups do and implement an MVP.
The offers are often a mirror of an unlimited "torrent of wishes", meaningthey include all the solutions functions that you dreamed of. But when you limit the scope of the project to elements that are indispensable and key to the tool and its generation of benefits, it usually turns out that the implementation cost is much lower. With time, you can develop the solution by adding further functions to it.
- You can also divide the project into stages.
Start with implementing the most important part of the project, which is quickly going to start paying for itself. You will be able to implement the next stages together with further budgets for IT projects.
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