Software Project Budgeting: Get real value and keep costs under control

Effective cost management is important for software projects' success in today's competitive market. For many, the value of a product or service often aligns with its cost, the more expensive it is, the more desirable it may be perceived. That is not always the case.
Suppose you're a business owner, a managing director, or a product owner weighing the costs of new software and struggling with the costs of your project. In that case, you likely understand that budgeting can be a decisive factor in a software project's success or failure. However, cost management goes beyond simply cutting expenses; it's a strategic approach to maximizing return on investment. Yet, many challenges arise along the way, a few to mention:

• Budget Overruns: Costs can exceed the initial budget because of scope creep or poor planning.
• Unexpected Costs: Such as infrastructure upgrades.
• Time Misallocation: Inefficient use of developer's time and resources, which can drive up costs.
• Lack of communication: Misalignment with stakeholders may lead to costly changes.
• Overlooking Risk Management: Unidentified risks can escalate into issues that can increase project costs.
• Overlooking Maintenance Costs: Project budgets often focus solely on development costs, overlooking long-term maintenance expenses. Planning for ongoing maintenance ensures costs are accounted for, reducing the financial strain after project delivery.

There's no one perfect solution to solve every problem when it comes to project budgeting. With over thirteen years in the IT industry, Kiwee has refined its cost management processes, tailoring them to meet client and project needs.

Kiwee’s budgeting process

Sometimes, clients come to us with broad objectives or a general vision of their desired product or service without fully defined requirements.
This is completely understandable, as many businesses focus on the big picture and may not always have detailed specifications in place.
Defining detailed requirements can be challenging, and without them, providing an accurate price estimation becomes difficult. While it may seem easier to give a quick estimate, doing so without a clear understanding of the project scope can lead to inaccurate or misleading expectations.
In these situations, we often advise Event Storming — an engaging, collaborative workshop that helps clarify and define specific requirements. Once we have the workshop's outcome, we prioritize and categorize the features using the MoSCoW technique - by choosing the Must-have, Should-have, Could-have, and Won't-have features. This not only allows us to focus on what's truly essential but also helps clients allocate their budget toward the features that provide the most value.

Having the must-have features and the detailed requirements allows us to create the budget estimate.
Estimating the project involves a PERT (Program Evaluation and Review Technique) session, where our team assesses the time required to complete a project and identifies the project risks and opportunities. Using three estimates to calculate a weighted average;

• Optimistic (O)
• Most Likely (M)
• Pessimistic (P)

This provides a realistic time estimate, which in turn helps determine the project cost based on the defined scope and required team size.
Next, we create a roadmap, which is a visual presentation of the project's functionalities, taking into account the estimates and the allocated team. The roadmap ensures alignment with the project's objectives and the team, helping set clear expectations.

After the roadmap, the client selects the most suitable payment model, which typically depends on client preferences but also the project's scope and risk factors.
The two most common payment structures in software development are Fixed-Price and Time and Materials (T&M).
The Fixed-Price model is best suited for projects with clearly defined, stable requirements that are unlikely to change. In this model, the client's involvement during development is minimal, although regular meetings are scheduled to keep them informed and ensure alignment.
On the other hand, the T&M model offers greater flexibility and is often preferred for complex or evolving projects. With T&M, clients receive deliverables periodically, and payments are made at agreed intervals (e.g., biweekly or monthly). Invoices are accompanied by detailed work logs to maintain transparency. This model encourages frequent client engagement, enabling continuous feedback and closer alignment with the development team throughout the project. Both budgeting steps and payment models are designed to provide clarity, ensuring that the client and development team can work collaboratively toward a successful project outcome.

As the first question clients often ask is 'How much will this cost?', the purpose of the entire process is to provide an initial estimate of both time and budget. However, it's important to note that these estimates are not set in stone and may evolve as the project progresses. If the chosen contract type is Time and Material (T&M), the project will be divided into phases or iterations, allowing the client to review the work completed at each stage and make payments based on the ongoing progress.

Let’s talk real numbers: How much does an eCommerce project cost?

When selecting a service provider, it's essential to understand the breakdown of costs to ensure you're getting the right value for your investment. Here's an overview:

• Software Development Costs (80%)
  This covers planning, design, development, and testing of your software. The hourly rates for developers and testers in Europe vary widely and depend on multiple factors, a few to mention, the experience level, technology stack expertise, and the specific region.
• Project Management (10%-15%)
  This cost covers the coordination and communication with your external team, ensuring the project stays on track and aligned with the goals.
• Infrastructure and Tools (10%)
  The team needs the right tools and environment to work efficiently. This includes costs for software licenses, servers, and necessary subscriptions, among other things.

To help you understand the budget needed during development, here are some key services that can enhance your project's success, along with their typical costs.

• Event Storming Workshop:
  This collaborative, interactive workshop helps define the project requirements and results in a detailed roadmap. The cost for an Event Storming session typically ranges from €3,000 to €5,000 covering workshop set up, facilitation, and digitalization of all requirements. The final cost, however, is highly dependent on several factors, including the complexity and scope of the project, team size, number of days required, and whether the session is held in person or virtually (with travel costs applicable for in-person sessions). For larger or more complex projects, pricing may extend to €10,000 or more.

• Website Performance Audit and Implementation of Improvements:
  A performance audit includes a general evaluation and an in-depth analysis of a website's functionality, speed, loading time, image optimizations, SEO, user experience, and technical aspects to meet industry standards.
  The improvements are prioritized (Critical, Major, Minor, Idea) followed by the implementation of the most critical improvements, this service may cost approximately between €5,000 and €15,000.

• Migrating to another eCommerce platform
  Let's take an example; migrating a shop from Shopware 5 to Shopware 6 involves a range of tasks, from updating Shopware's core functionalities to ensuring a smooth transfer of data and integrations without any additional features. For a project of this nature, the cost generally ranges between €18,000 to €22,000 per month as a budget cap, based on a Time & Materials (T&M) payment model. In the T&M model, billing reflects the actual time spent each month, allowing flexibility for any adjustments that may be necessary as the project progresses.

The team included in this budget is a senior full-stack engineer and a mid-level full-stack engineer, both skilled in front-end and back-end development (100% involvement), along with an intermediate project manager (10% involvement) and a software architect (15% involvement). The software architect ensures the platform's technical architecture aligns with best practices and is optimized for performance, security, and scalability.
Conducting workshops such as event storming, project scoping, and setting up priorities play crucial roles in estimating the project's total costs. These activities help understand the project's scope, define requirements, ensure alignment between stakeholders, and provide a more accurate budget estimation.

Tips for managing your software project budget effectively

Managing a software project budget can be challenging, but it's possible to stay within budget while delivering a quality product with the right approach. Here are some important topics that clients and service providers should focus on to keep costs under control and optimize their project budgets;

• Ensure the Project Has a Dedicated Owner
  Having a Project Owner (PO) is crucial. The role of the product owner involves assessing all project requests, filtering them, and setting priorities. PO ensures only essential features are developed, saving hundreds of hours of developer work.

• Planning and Scope Definition
  Make sure the project scope and requirements are clarified with the Product Owner before any work begins. Clear planning prevents unexpected changes and budget overruns during development, ranking project requirements based on the value they add. If budget constraints arise, prioritizing the essential features and postponing or removing less critical ones is the right thing to do.

• Use Agile methodologies for Flexibility
  Agile methodologies, like Scrum or Kanban, help manage projects in iterations. This flexibility allows us to adjust priorities as the project progresses and react swiftly to unforeseen circumstances to get the most out of the budget.

• Estimation Techniques
  Breaking down project features and using estimation methods like three-point (PERT) estimation helps forecast costs. This will give stakeholders a realistic view of the budget.

• Cost Contingency
  Unplanned expenses are common in software projects. Set aside 20% of the budget as a contingency fund for risks or unexpected costs. Having a reserve lets you manage unforeseen issues without jeopardizing the entire project.

• Risk Management
  In software development, risk management means preparing for things like unexpected changes, delays, or technical challenges. It means finding potential problems early, planning how to handle them, and taking action to avoid them. By proactively identifying, assessing, and mitigating risks, projects can stay on track, avoid extra costs, and run more smoothly.

• Implement Change Control
  Changes to the project should always go through an evaluation. Evaluating each change for its impact on the budget before approval. This keeps the project focused and prevents costs from increasing with each small change.

• Track Costs in Real-Time
  Monitor expenses continuously. Regularly reviewing cost reports helps catch any deviations early, allowing quick adjustments to stay on budget.

• Maintain Regular Communication with Stakeholders
  Schedule regular check-ins with stakeholders to discuss the project's budget and progress. Keeping everyone informed of changes or cost adjustments reduces misunderstandings and ensures alignment.

Conclusion

A commitment to budget transparency and delivering value is essential for building trust and ensuring long-term success in software projects. Clear, upfront communication about costs, combined with realistic and detailed budgeting, helps clients stay informed throughout the project's lifecycle.
At Kiwee, we emphasize this approach by providing transparent cost breakdowns and working closely with our clients to ensure that each project delivers maximum value within the given budget.