As you’re budgeting for the end of 2023 and moving into 2024, now is the right time to build a software budget development strategy to gain clarity and achieve success.

Optimizing Software Development Budget Planning

In 2014, Harvard Business Review (HBR) reported that one in six software development projects had cost overruns of 200% or more. This is the proverbial “black swan” project that no project manager wants in their portfolio.

Scope creep is one of the primary reasons that software budgets can get out of control. Identify your project’s scope in detail in the planning process. It’s important to communicate with all of your stakeholders to ensure that the goals, features, and functionality are all identified in detail, forming the basis of your project’s plan and scope.

No matter which industry you’re working in, there are a few basic requirements to creating an optimal software development budget. After you define project requirements, you’ll need to break your project down into phases, estimate costs, identify risks and plan for contingencies, and review and finalize the budget plan.

HBR recommends a few questions that project managers should ask and answer before they decide to launch a development project.

They include:

  • Should we undertake this project now?
  • Which features are essential and which are optional?
  • Will this project cost too much and deliver too little ROI?
  • Will we build this project next or deprioritize it?

These questions are complex and won’t always have the same answers. However, it’s important to answer them before you proceed further so you have a clear picture of the development journey you’re embarking on. When budgeting, it may also be effective to take a top-down approach by budgeting for major project categories first, and only becoming granular when absolutely necessary. You may see quickly that a project will cost too much to be worthwhile before spending a lot of time on details.

HBR offers a quick method to do a sample budget, organized by major feature/functionality, the time required to develop it, and ballpark estimates of cost.

Achieving An Excellent ROI On Software Development Budgets With Agile & Scrum

Return on Investment (ROI) can be calculated many ways, but one way to get an excellent ROI in software development comes from using agile methodologies that can reduce development time while improving products and achieving development goals.

The Agile Manifesto came out of the sense that traditional ways of calculating ROI and managing software development projects were ineffective in the constantly changing software world. In particular, Scrum methods allow projects to respond to the full range of value that can come from a software product. Using Scrum, you’ll have the following important roles:

  • Product Owner: the lead who envisions the direction of development. The product owner will build the backlog, direct the project, and coordinate with the Scrum Master.
    Scrum Master: the team coach, who acts as the team coordinator.
    Scrum Team: the team that builds the product.

Each of these roles has a part to play in ensuring that the project has a good ROI. When calculating ROI for software projects, project value can be derived from value stream mapping. This means that you need a value stream both before, and after, project development and implementation. At each point in the value stream, cost savings, or increased revenue, can be assigned, resulting in a total picture of where value is being added and where resources are being wasted.

Handling Unexpected Software Development Costs

It’s challenging to find a software development project that has never run into unexpected costs. The primary reasons that software development projects go over budget are unforeseen complexity and scope changes. Another reason for unexpected costs during development? Estimation errors.

However, it’s possible to handle unexpected costs effectively and efficiently. The more information that you can uncover up front as you engage in the budget planning process, the greater the chances are that your project can be completed on time and within a budget that makes sense.

Including a detailed project strategy phase and following an organized strategy and planning process can greatly reduce unexpected software development costs. When working through project strategy, you should consider the following elements:

  • Working sessions to identify project scope, roles, and features.
  • Creating written user stories that will define the system and project’s desired behavior.
  • Conducting estimating sessions that will assign points to each user story, resulting in estimated levels of effort and work required.
  • Creating an estimated completion schedule that uses project scope, recommended development team size, and start date.

If unexpected costs arise during the development process, chances are they could also be valuable learning opportunities. You may want to consider conducting small user studies early in your project development process. This way, you can adjust your own expectations about the project and benefit from these unexpected costs.

Advantages Of The Minimum Viable Product (MVP) Approach

While some well-known products like Dropbox acquired their initial customers with just a video and not a functional MVP, it’s more likely that your product will need to offer at least some essential functions to get initial traction with users. There are many benefits to using the MVP approach in software development projects in addition to getting to market faster and implementing the product with users.

Adopting an MVP approach can help you validate your product in the market or, if it’s an internal product, among your organization or company’s users. The MVP will also allow you to test your product and fully utilize an agile development approach. In addition, an MVP allows you to focus on the essentials, and not get lost in “nice to haves” that aren’t going to be part of core functionality.

If there are any people in your organization who may have doubts about your product and project, the MVP can help convince them of its value.

Maximizing your software development budget means you can deliver a product on time and within budget that your customers and stakeholders will love. You might budget for a software development partner as part of your software development budget planning. Your project’s scope, functionality, and agile strategies can help you determine the best course of action to ensure that your software development budget ROI is the best possible.

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