Digital technology enables organizations to increase productivity and better interact with customers. However, in many technological initiatives, cost overruns are still observed, which significantly damages the end result and undermines the value of the software development effort.

Cost estimation is not a simple task, the incorrect solution of which can lead to disastrous consequences. In order to avoid such an outcome, companies must take into account the costs of man hours, user needs, program capabilities, structure and coding costs. Proper distribution of invested funds requires a strategic approach to the organization of projects, and clarity of their final result, which allows to achieve certain business goals.

In severe cases, sometimes you even need to return to the very beginning of planning and again evaluate the priorities of financing your digital endeavors. Therefore, we offer you some practical tips for building an effective software development budget in 2020.

1. The introduction of flexible methods.

Agile is a collaborative, iterative approach to creating software that involves engineers performing multiple sprints to quickly achieve the functional minimum of a viable product (MVP) of value to the business. In financial terms, this allows you to provide lower payments for iteration, in contrast to large amounts at specific intervals, which may not affect the actual progress of your future ideas.

Thus, ensuring functional quality is the main goal of the Agile method, and the early detection of weaknesses reduces the costs associated with an erroneous code in production. At the same time, production is fully focused on cooperation and communication, which enables business leaders to see where the development budget needs to be amended and which solutions will ensure the project is most consistent with its objectives.

2. The calculation of the Agile speed of maneuver.

"Agile" in a flexible development environment is the time spent on doing work in each particular sprint. Any separate part of the work - for example, the implementation of a function or the development of a separate page - is called a "work unit", which can be evaluated for a more precise breakdown of the calculation.

The budget for creating intelligent software is based on an estimate of the number of units that a team can complete in each sprint. These points allow you to roughly estimate the time required for each iteration, and thus predict the speed of the team and the total cost of the project.

Having got an idea of  how much each sprint will cost, you need to evaluate all the possible and most probable cost scenarios. So you can understand that, for example, if in the worst case you need to do nine sprints, the most likely scenario may be six or seven sprints, and in the best case, five. When making these forecasts, take into account the experience of your team and the accuracy of past assessments - more well-developed, experienced teams should be able to accurately evaluate their work. Make sure that you do not use the same methodology for assessing speed in different teams and projects, because each team has its own characteristics and approach to user needs.

However, one should not forget that when you involve colleagues from other functional areas, their knowledge of Agile may be insufficient or absent altogether, and they may try to use these estimates to request fixed contracts with suppliers in the hope that this may be cheaper or more predictable. The truth is that the lion's share of failed projects and failed program budgets happen for precisely this reason. Possessing even the best evaluation methods, it is better to remember that almost every software part is a unique enterprise, so it is not possible to predict the cost and duration of each function with 100% accuracy.

If you need to direct part or all of your work to outsourcing, then the best solution is not to give up flexibility, but to interact with your partner in creating software in a flexible way. So you will keep abreast and take control over the work, taking part in sincere, joint discussions, to determine work priorities in accordance with current business goals, and not with what was required when the budget for software development was just drawn up.

Keep in mind that the main goal of the software is to become a value for your users, your client and company as soon as possible, therefore managing your budget alone is far from the best possible approach to the project.

3. Make a plan in advance and arrange the main functions of your software by their importance.

It makes no difference whether you are creating a budget for a completely new deployment or modernization of an existing platform, determine the preferred functions and functionalities that will be the goal of the project in the short term. This will provide an opportunity for continuous and consistent development of your project.

In MVP, the emphasis is on "M", that is, on the "minimum". Keep it simple by identifying the most important aspects of the software and organizing appropriate development budgets for them. This approach makes it easy to evaluate the potential value of your software after each iteration taken individually.

From the planning side, this makes it possible to create design ideas and various frameworks, or at least work with examples of competitor products to give developers an idea of  how future software will look and function. Together with increasing the overall flexibility of the team and reducing costs, this process provides the opportunity to combine functionality and practicality with real business benefits and simplifies maintaining a dynamic software development budget that is not exceeded, thereby ensuring a stable and consistent development of your project.

4. Assess the benefits of working with partners.

For a long time, organizations turned to the support of third-party suppliers to reduce costs and acquire critical skills and capabilities. For companies wishing to improve the efficiency of their software development budgets, outsourcing is a proven and reliable method of minimizing production costs while ensuring long-term value for their business.

When choosing a partner, be sure to evaluate his previous experience with methodologies such as Agile development, which are becoming increasingly relevant and in demand for digital projects. In addition, pay attention to such details as the company's culture and its geographical location. When working with a number of the latest technologies, staying in similar time zones can be a beneficial circumstance, due to the possibility of real-time collaboration.

5. Budget technical debt.

Software projects are systematic and multi-stage efforts that do not end after the release of version 1.0. Thus, it is important to calculate a budget for the phased development of your applications and allocate time and resources to process your technical debt. Failure to cope with technical debt can cause big problems in the future. You will be so focused on solving current problems that you will miss an advantage over competitors with a more agile and flexible technical stack, having fallen out of the race for a considerable time.