Predict time, costs, and human resources if you want to start up any IT project. Traditionally, estimation is carried out by software development vendors. Potential customers, in their turn, should get their budget right. To avoid conflicts between two sides, all the stakeholders should know how to make calculations in the most practical way.
Key Factors Affecting the Accuracy of Estimate
To accurately calculate the duration and software development costs, vendors should address various aspects. Below are the most important factors affecting the results of the estimation process.
Tasks
When a client provides initial requirements, developers divide the work into multiple tasks. For example, if developers are to build a CRM system, the project can be divided into modules with regard to the back-end part and the front-end part. When a team has all the tasks, it can easily define the time needed to complete each of the tasks.
Duration
No matter how developers do their best to accurately define how long the project will last, the final terms frame is rarely true. So, first of all, starting from the complexity of the tasks and the experience of the team members, extra time for various unforeseen circumstances should be defined.
Next, developers determine the workflow. Regardless of the methodology used, Agile or Waterfall, you need to know in what order the team performs the assigned tasks.
Cost
The total price of the project is typically composed of the monthly administrative expenditures and developer salaries. Administrative costs may include office rent, fees for servers and licenses, etc. Usually, managers’ salaries also refer to administrative costs. However, project management may be an optional cost in case if your team is composed of freelancers or it’s a small team.
Three Types of Engagement Models That Affect the Price
The way a customer chooses to cooperate with a vendor affects the total price of the project. Vendors and customers must clearly define the goals and requirements. To minimize misunderstanding as well as to reduce conflicts arising from the difference in expectations, a software vendor provides a detailed SRS documentation containing the following aspects:
- Quality requirements
- Methodology and acceptance criteria
- Requirements for change management
- Requirements to change requests
- Means of communication
Below are the main three engagement models offered by software companies.
Time & Materials
In accordance with the Time and Materials model, a customer pays the supplier hourly rate and reimburses the costs associated with the service. The main advantage of this model is a minimum of preliminary work. The only thing that needs to be coordinated before starting work is the hourly rate of IT specialists.
Fixed Price
When using the Fixed Price model, software vendors calculate the scope of work and bill a client for the entire project. Such a work model motivates the timely delivery of the finished project and provides customers with the opportunity to manage time and budget. This type of engagement works best for the projects with a small scope.
Dedicated Team
Dedicate team is a perfect choice for large and long-term projects. It is recommended for custom CRM development, ERP development, and other IT products for enterprises. The budget according to this model is clearly predicted. Customers can easily ask for any changes if needed. The team usually responds quickly to such requests. Besides, this type of cooperation provides the best scalability options. If there’s a need for new skills or expertise, recruiters of software vendors are able to find the required resources in just a few days.
Top Techniques to Evaluate the Cost
Below are the possible options to calculate the total cost of the project.
Technique 1 – Top-Down Estimation
The overall project scope is divided into tasks. Every task is estimated separately. All the tasks are summarized to make up the total price.
Technique 2 – Parametric Estimation
Data and variables are taken into consideration when calculating the total cost of the project.
Technique 3 – Analogous Estimation
Similar project and its total cost are taken into account.
Technique 4 – Bottom-Up Estimation
Separate tasks are estimated and then incorporated to make up the total cost.
Technique 5 – Three Point Estimation
Three similar project estimates are taken together. The average cost is defined and then serves as a basis for the total cost.
A Short 8-Step Guide to Project Estimation
- Start with discussing a project idea with all the stakeholders. Your task is to clearly understand what customers actually want.
- Determine if your developers and other specialists possess the skills and expertise that are relevant to project requirements.
- Make a list of initial requirements to the project. Match those with the needed skills. Compose a detailed SRS documentation.
- Study the similar projects with your team. Discuss if you can use the previous estimates as a basis for the upcoming project.
- Ask as more questions about the project as possible. You should have complete information about the project: its goal, its participants from the client side, budget, the services required by the customer.
- Break down the entire project for separate tasks which may act as data, services, or products.
- Select some helpful planning tools to estimate the project. It may be specialized software to assign tasks, allocate resources, and estimate the time needed to complete the tasks.
- Start planning your project. Once you discussed everything and got a plenty of information, you can proceed to planning and making calculations.
As you can see, it’s a daunting task to calculate the total cost of development. You should keep in mind a bunch of details, rules, and steps. However, if you adhere to the essentials of cost evaluation, you will definitely get a workable budget.
