6 tips for managing your software development budget

Managing your software development budget can be one of the more challenging aspects of a project. But it’s also essential to get it right.

If you overestimate the budget, you misallocate resources that could be better used elsewhere. But if you pitch it too low, you might not have the funds available to deliver on the original vision, which can lead to cut corners and poor outcomes.

In this article, we’ll run through six useful tips that will help you craft and manage your budget effectively.

What are typically the biggest costs?

Before getting started on a software development project, it’s vital to draw up a realistic budget. Understanding what this should include is fundamental to eventual success. If core cost drivers are left out, you can quickly find yourself in a situation where the available funds simply aren’t sufficient to deliver the project on time.

The biggest single cost in any software development budget is usually paying the development team. For an initial idea, you can use online resources to help you consider your labor costs. If you’re employing an in-house team to carry out the project, you need to factor employment uplift costs into the budget on top of the basic salary figure. This may include:

• Healthcare
• Social security
• Employment taxes
• FICA

Don’t forget to include the labor costs for everyone involved in the software development workflow, not just the developers writing code. It’s common for development projects to need the skills of other professionals, such as graphic designers or copywriters, for example.

Then there are the other costs. On top of labor, you may also need to consider project-specific costs such as:

• Equipment and infrastructure
• Software tools
• Integration
• Site overheads
• Data storage and transfer

Each project will be unique, so it’s crucial to establish which of these costs will feature before you begin.

Factors that influence a software development budget

Costs will also vary depending on a number of other factors. The most important ones to consider are:

Type of project

Software modification tends to involve more complex processes than developing a new product from scratch, so it can cost more. That’s largely because it may involve a certain amount of “if I wanted to go there, I wouldn’t start from here” complication, whereas you have full control over the approach to developing new software.

Length of project

The longer a project takes, the more likely secondary costs will rise. For instance, if team members leave and have to be replaced. Also, overheads might increase, or equipment may have to be upgraded or replaced. It all adds up.

Project management approach

Aiming to develop a minimum viable product (MVP) that incorporates only basic features and then adding more later on can save time and money. Full product builds will take longer and cost more.

Common challenges in budget management

There are a number of issues that can crop up during a development project, which can pose a challenge. These include:

Resource allocation

At the beginning, it’s not always clear how to allocate resources efficiently. Developers vary in their skill sets, and it’s crucial to keep an eye on progress so you can make changes if necessary.

Scope creep

If the project becomes more complex over time (scope creep), the initial budget might not be adequate.

Unrealistic deadlines

Proper planning at the outset is vital. Overly optimistic deadlines can throw the whole project (and the budget) into disarray. Accurate time and expense tracking is critical to identifying emerging issues before they turn into problems further down the line.

Tips for managing your software development budget

Projects vary in scale, complexity, and implementation, but managing the budget well is essential to successful delivery. Here are six tips to help you do just that.

1. Set a realistic budget

There are many factors to take into account when it comes to setting a budget that’s both comprehensive and realistic.

As we’ve already mentioned, the heaviest expense in most software development projects is the cost of labor. Estimating how much this will come to can be tricky, but you can use previous projects as a guide.

It’s good practice to build in some contingency as well since development projects have a way of presenting you with surprises as they proceed, some of which can add considerably to the completion time.

Building a budget can quickly become a complex affair, so it’s worth investing in professional services software. This will give you a consolidated view of all your costs and multi-dimensional insights, making it easier to plan and set a realistic budget that includes all project expenses.

2. Prioritize features and requirements

Of course, you can’t create an accurate budget forecast without determining exactly what features you’re planning to include in the software. Meet with stakeholders to establish their requirements. Good questions to ask include:

• Which type of solution? (e.g., app, PWA, enterprise platform)
• Who will be using the software?
• What will it be used for?
• Which integrations will it need?
• Do you have specific design or layout requirements?

The goal is to make sure you have as complete a picture as possible of what you’re setting out to achieve with the software. Agree on how features should be prioritized. List a set of basic features that are essential, and then rank additional ones in order of importance.

3. Utilize third-party and open-source providers

You can often cut costs without sacrificing quality using third-party providers or incorporating open-source resources.

According to Arc, you can reduce your total labor costs by nearly 50% by hiring freelancers rather than using in-house teams. Now, this may not be possible for all projects. Certainly, if the project is commercially sensitive, it will often be better to keep it in the family, so to speak. But for many projects, hiring skilled contractors is definitely an option worth exploring.

Similarly, you may not need to develop every aspect of the project from scratch. Make full use of any available open-source plugins and other pre-built software modules. Doing this will help streamline workflows and reduce the amount of time needed to complete the project.

4. Monitor and control costs

Controlling costs is crucial in any business project to prevent them from spiraling out of control. This requires constant monitoring.

As part of your initial project preparations, you should create a timeline. Break down the project into its constituent parts and estimate how long each will take. That way, you’ll be able to keep a handle on how closely you’re sticking to the budget over time.

For tracking purposes, you can integrate whatever project management platform you’re using with a business accounting solution. It’s best to opt for dedicated business software for SaaS or similar development teams because they’re built with configurable integration functionalities.

By using a tailor-made business software solution, you’ll be able to monitor all your project data on one centralized system and utilize features such as subscription billing models or SaaS metrics, to create accurate forecasts that fit your project. 

5. Encourage effective communication and collaboration

Optimizing your budget means making sure all workflows run as smoothly as possible, and that takes good communication. When information flows freely, everyone on the project stays up to date with recent developments, and the risk of errors cropping up is reduced. And when an issue does arise, you can resolve it quickly, minimizing any potential hit to the budget.

To help with this, make sure you’re using the right communication tools for your project. For example, if you hire freelancers or work with external partners, consider a communication platform that facilitates easy collaboration across all teams.

Fostering team collaboration is essential. It won’t necessarily emerge organically, so be sure to encourage regular communication via some combination of:

• A dedicated project management platform
• Regular team check-ins
• Knowledge-sharing channels
• Centralized resources repository
• Comprehensive documentation

Having these factors in place makes team cohesiveness much more achievable. And when your team is working together like a well-oiled machine, that helps the project stay on track and on budget.

6. Invest in training and development

Putting the focus on delivering one project at a time can lead to deprioritizing certain critical elements of successful software development. But one area where it’s crucial to take a long-term approach is training and development.

There are several reasons why putting an emphasis on regular training represents a good investment:

Encourages best practice: when everyone in the team follows the same protocols, it helps streamline workflows and enable good communication.

Incentivizes top talent: the best professionals will always have a choice about who to work for. Retaining top talent is much easier if they know you value them enough to provide ongoing training.

Improves team flexibility: broadening and deepening the skill sets of each individual strengthens the team as a whole and gives you more flexibility when assigning work.

Overall, putting an emphasis on upskilling will empower your teams and help them deliver the top-quality work you expect to see. 

Make sure to include a line for training in each project budget and carefully consider the cost of online training platforms. These can be vital when training and upskilling your teams as they allow you to build your own courses and monitor your employee’s progress.  

Final thoughts

Every software development project is unique. The budget you build for each one needs to take account of a broad range of different factors, and no two budgets will be the same.

That said, there are some universal best practices that are vital to follow. Being realistic from the outset is essential, as is building in sufficient contingency so that unexpected issues can still be accommodated within the existing financial framework.

Keeping a project on a budget can be a challenge. But the good news is that if you put the tips included in this article into practice, it’s one you’ll be ready to meet head-on.

Author bio

David Appel is Global Head of the SaaS Vertical for the largest technology company on the London Stock Exchange, Sage. Over time as a Sales and GTM leader, his organizations have earned the business of >2,000 SaaS and Software companies, growing at 40%+/year. He previously ran Direct Sales at Bill.com, led NetSuite’s Software Vertical, and was part of IBM’s Corporate Development team.