How to Estimate Software Development Cost 1
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Software cost estimation is always challenging. Every project is unique and requires a different approach to the price definition. We are humans, so it might not be easy to anticipate how much effort and time the project may need. However, we can provide some recommendations that can help you evaluate the project and make accurate estimates. Without further ado, let’s consider them. 

Agile Contracts for Software Development Projects

When defining the software development cost, it is important to understand that the price is a product of time and the team’s effort. Add more development time or the number of employees involved in a project, and you will get an increase in the costs. Naturally, it’s always avoided if possible. 

The Agile development system is focused on delivering a cost-effective solution by balancing the time and the team and considering them as the variables. It allows providing different price options depending on these variable components. What does sound better to you? The fixed-price or variable cost? Of course, we should be flexible and keep in mind that it might be senseless to keep up with a precise price and time if the product doesn’t address the client’s needs at the end. 

However, we should also consider that the fixed cost option usually gives more confidence to the stakeholder. There are several standard contract pricing and project estimation systems in Agile product development. So Agile contracts focus on the following:

Fixed price work packages 

In the fixed price packages, the whole project is usually broken down into small releases. Each of them contributes to the project outcome. Every mini-release is a package of services priced accordingly. Once this work package is done, further releases are re-assessed, considering what we have already learned from previous ones. It enables you to provide much more effective work re-prioritization and helps the client decide on the new features to be created in the next package.

Early termination

Early termination implies that the client can terminate the project earlier if there are enough services and results. There is no need to involve the team in further development, as there is no ROI to be achieved anymore. This kind of collaboration is only allowed and possible if there are long-term and trust-based relationships between the company and the client. The appealing advantage for the client is that the project might be stopped, delivering enough outcomes to present a viable solution without spending extra-money.

Flexible changes

The change is the blood of the Agile development system that is flowing through its different processes and stages. Our team doesn’t expect that we know absolutely everything to build a successful product from the very beginning of the project. We learn it gradually, as we dig deeper into the process. That’s why a range of changes and complements are required during development. 

We promote not just flexibility and adjustments for the top results, but we also offer changes based on data. Some changes lead to the development of a fewer number of features. Until the change is equal to the initial solution or is even cheaper, it may add to the overall cost. Flexible changes are also usually possible in projects with long-term and proven relationships between the client and the team.

Additional work

Sometimes, you may find out that more features are needed to be developed during the project. In this case, we talk about additional work that causes additional costs. We recommend including such an option in your project since it allows you to stay flexible and build a better product involving additional costs if it’s impossible to achieve within the fixed price.

Ranged estimates

There are several ways the software development costs can be ranged in Agile product development: a range of duration or a range of features. A range of duration allows us to say that the project will take around 14-16 weeks. A range of features means a certain set of features should be developed during the project. 

We prefer to use a range of features across a range of story points, considering the scope of work as the variable but promising to provide a minimum level of value to the client within the fixed timeframe of the service package or entire project.

Our approach to software development pricing and costs

Our software developers work closely with our customers and apply price evaluation techniques that provide more confidence to the customers. At Fireart Studio, we have devised our own approach to software development cost estimation for the fixed price project and would be happy to share it with you. So, let’s consider it in detail.

Initial high-level scope

At the beginning of the project, it might be difficult to evaluate the precise number of features and options our clients may order. That’s why we start with a high-level scope with a range of features. First of all, we take into consideration your business goals and KPIs. They help us set the initial scope of work. 

Later, we define a set of epic features that are the bones of your software product. After that, we apply the MoSCoW analysis to identify what is really important for the project and what is just nice-to-have. They can be referred to as “Must,” “ Should,” “Could,” and “Won’t.” The last type of features could be important one day; however, it’s currently out of scope for this work package. 

Proposal

To decide whether to continue with the project, you must have enough data about the duration and the cost. There are three essential questions you must ask yourself before digging into the production process: When will we launch the project? How much will it cost? Will it correspond to our business strategy? 

Once we get this information from the client, we are ready to prepare a proposal. We pick software developers with a specific skillset that corresponds to the project requirements. Once a proposal is accepted, we can move to the next project stage.

Product launch planning

At this phase, we create a product backlog, estimate features, conduct task and work prioritization, and release planning. Now, we identify how long it will take to provide a releasable software product. Together with the client, our team determines what can be reached and how fast the scope of work can be completed to create a plan for the product launch.

Signing a fixed price contract

When a product launch plan is prepared, our experts can provide you with a precise project quote. The quote for a fixed price contract is provided along with a statement of work and agreed payment schedule.

Final Thoughts

Are you looking to estimate how much it costs to develop a software product? Here we have outlined our process of software development cost estimation. Hopefully, our insights will help you better understand how the development process begins, what to expect from it, and how to evaluate the price for your software creation. 


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