How Should You Estimate Software Development Cost?

In your role as a solution architect, it is important for you to create project estimates. Besides creating the estimate, it is vital for you to explain the logic behind it. Considering the factors that go into cost estimation, forecasting the weather is sometimes an easier task than estimating software development cost.

To generate an accurate estimate, you need to dissect the project work into individual components and then estimate both the timeline and appropriate cost for those components. Keep in mind there are a number of variables that are subjective, meaning you need to factor additional time into your estimate. Without wiggle room or structured flexibility, you very well may set your project up for failure.

Generally speaking, the software development methodology that you choose won’t matter much. Teams use various methods such as Waterfall, Agile and some combination of other popular methods. In some cases, the project forecast can challenge the technology and engineering teams, and estimates that are inaccurate may also cause problems for the business.

Here are some insights we have learned that can help you generate better software development estimates:

No 1 – Understanding the Need

Before you move to the estimation, it is necessary for you to understand the product concept. You should ask a lot of questions to the client before kicking off your project. It is necessary that you have a sound understanding of the target audience and the problems they face. You should know how the product is going to help fix their problem.

No 2- Decode the Features

Once you have the necessary information on hand, it is best to decode the features. To put it simply, start to break down all large tasks into smaller ones. We begin to decompose the tasks as per the following structures:

Epics> User Stories>Use Cases.

Epics: Epics are large, coarse-grained user stories. They are a placeholder for detailed stories, as they help sketch a feature or larger piece of functionality. Epics permit you to create product functionality without you having to commit to the details. It is useful particularly for the new products and major project updates. It gives you the necessary time to learn more about the users and their needs. They assist in articulating the vision well. In fact, they give the necessary context to the team to create solutions that are impactful.

User Story: User stories are critical to understanding what the client requires. You can guess what he expects at a given point. They help you know how the target audience will behave when using the software. You can build the features of the software as per the list you have compiled.

Use Cases: Once you have the user stories, you need to work on building a list of features. Especially focus on detailing features that will make the software easy to use. Prepare it from an end user’s perspective so that they do not face any challenges in navigating the product.

No 3- Understand Cost Implications

There will be times when a client will demand a particular system functionality. If people present him with a much better or an alternate approach, he might choose not to listen. Unless someone feels responsible and shares with the client about the cost implications, he might not understand the problem. Only after he clearly understands the costs for the function, he might change his demand. The team then can come to a reasonable solution with ease. If you practice the habit of give-and-take in forming estimates from the beginning, it will help in driving more realistic expectations.

No 4 – Involve Business Stakeholders In the Software Estimation Process

Involving the business stakeholders in the estimation process is a win for everyone. They can assist in defining things that are critical to the software development cycle. Business leaders and technology teams can gain a shared understanding of the project. The best part is that everyone who is part of this meeting is accountable for the initial estimate.

No 5 – Use Analogous Estimation

Teams combine various estimation methods to make a precise estimate. Using analogous estimation is wise as you can use a measure from a similar project that you did earlier. It will assist you in estimating the cost and the duration of the project much better.

This kind of approach works well only when the tasks in the project are identical to the ones you did earlier. If you have never built all the features, you may choose the judgment estimation approach.

No 6 – Leverage Expert Judgement in the Estimation

An expert or a group of experts who have vast experience should work on creating an expert judgment estimation. The whole process of expert judgment estimation is iterative. An expert or experts typically are individuals with 10+ years of experience and have spent a lot of time in preparing estimates in the past. They are able to re-leverage past research. Following this process, the project manager should meet the experts to review the scope of work.

The final review process will come from the client. The client should review the scope of work and provide commentary. Encourage clients to add or remove features which do not align with the scope or are prohibitively expensive from a cost or time perspective. The best estimates will produce results on time and in-budget.

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