How to Plan and Budget for Custom Software Development 

Custom software development can enormously impact a business and is a significant investment. Planning and budgeting help keep costs down and ensure the most optimal outcome. Consider the following factors when planning and budgeting for a custom software development project.

Set a Project Cost Limit

Spend enough to get the product the business needs, but balance that expense against the company’s other costs. Set a maximum budget for the development project to prevent runaway expenses. With this number in mind, prioritize certain features and allocate the budget accordingly.

Review the business’s profit and loss statements, revenue, and other recurring expenses when setting a cost limit for the project. Use this information to allocate funding properly.

Document the Project Requirements

To accurately budget for the project, create a detailed requirement list with the product team. List all the features and functionality the custom software solution needs to have.

This step helps ensure the project finishes on time and within budget, and that it meets expectations.

Documenting the requirements also helps define the product’s quality expectations, sustainability requirements, and other success criteria.

Project requirements fall into two categories: Functional and non-functional.

Functional requirements describe the actions users must be able to perform with the application. Examples include things like “create an account,” “add items to the shopping cart,” and “send a message.”

Non-functional requirements outline the quality aspects that the product must meet, such as performance, security, and usability.

Documenting the functional and non-functional requirements helps define the project scope: team size, timeline, and technology needs. The scope impacts the budget for development.

Conduct a Feasibility Study

A feasibility study assesses the viability and potential success of a project. It helps determine whether the proposed software solution is technically and financially viable and aligned with the organization’s goals.

Conducting a feasibility study occurs after the team defines the project scope and gathers the requirements.

Assess Technical Feasibility

Evaluate the technical aspects of the project, such as the required technologies, infrastructure, software development tools, and expertise. Determine if the project can be realistically implemented given the available resources and technical constraints.

Analyze Economic Feasibility

Evaluate the financial viability of the project. Assess the estimated costs involved in developing, implementing, maintaining, and supporting the software solution. Compare these costs with the expected benefits, such as increased efficiency, cost savings, or revenue generation, to determine if the project is financially feasible.

Evaluate Operational Feasibility

Determine whether the proposed software solution is operationally feasible within the existing organizational setup. Consider factors such as compatibility with existing systems, integration requirements, training needs, and potential impacts on current business processes.

Consider Legal and Regulatory Factors

Evaluate any legal or regulatory requirements that might impact the project. Ensure compliance with relevant laws, regulations, and industry standards governing data protection, security, accessibility, and other factors.

Assess Schedule Feasibility

Evaluate the timeline and schedule of the project. Consider the availability of resources, potential risks, and dependencies that might impact the project’s timely completion. Determine if the proposed timeline is achievable and realistic.

Identify Risks and Mitigation Strategies

Identify potential risks and challenges associated with the project. Assess the impact of these risks on the project’s feasibility and success. Develop mitigation strategies and contingency plans to address these risks effectively. In highly regulated environments, this stage is an excellent point to create a traceability matrix to track risk mitigation efforts and provide proof of compliance to auditors.

Present Findings and Recommendations

Summarize the findings of the feasibility study in a comprehensive report. Present the analysis, conclusions, and recommendations to stakeholders and decision-makers. Clearly communicate the project’s feasibility and highlight any potential concerns or limitations.

By conducting a thorough feasibility study, software development teams can make informed decisions about a project’s viability and potential success. It helps minimize risks, ensure alignment with organizational goals, and maximize the chances of delivering a successful software solution.

Create a Project Roadmap

A project roadmap is more than a timeline; it’s an overview of the project. As such, it must be easy for all stakeholders and team members to understand.

Here’s an overview of how to create a project roadmap with a Gantt chart, the preferred roadmapping tool of most project managers.

1. Break Down the Project Scope

Remember how we said the requirements document helps define the scope? That’s because the project scope is the sum of all the tasks needed to complete the project. Defining the project scope, then, is the first step in creating a project roadmap. The team can’t draft an accurate project timeline unless they know what project activities need to be done. A work breakdown structure will help ensure every task is identified.

2. Map Out the Project Tasks

Once all the project tasks are identified, create a project timeline Gantt chart. The project manager can use a Gantt chart tool for this task or create it with Excel.

3. Link Task Dependencies

Once the team has a basic project timeline with tasks and their due dates, they need to determine the order in which tasks need to be done—the task dependencies, in other words.

4. Identify Deliverables

Identifying deliverables is just listing the expected outcome of each task. Tracking deliverables helps alert the team when dependent tasks are ready to be worked on.

5. Set Project Milestones

Project milestones mark progress toward an ultimate goal. A few examples of milestones are: beginning and end dates for project phases; getting approval from a stakeholder that allows the project to move to the next phase; key deliverables, meetings, or events; external reviews; or budget checks. In other words, milestones are the significant events within a project.

Assemble a Development Team

Determine whether the in-house team is capable of handling the project or if they need to be augmented with external developers. Evaluate the team’s skills, experience, and expertise to ensure they align with the project’s requirements.

Work closely with the development team to estimate the effort required for each task and phase. Consider factors like design, development, testing, project management, and any potential complexities. Use historical data, expert opinions, and the team’s insights to arrive at realistic estimates.

Regularly Review and Track Progress

Throughout the development process, closely monitor the project’s progress against the planned roadmap. Track the actual time and effort spent on each task and compare it to the estimated values. This will help identify any deviations and make necessary adjustments.

As the project progresses, the team may need to refine the plans and budget based on new insights, changes in requirements, or unforeseen circumstances. Remain flexible and adapt to ensure the project stays on track.

Software development budgets are estimates and can vary based on project complexity and unforeseen challenges. It’s essential to maintain effective communication between the development team and stakeholders to address any changes or issues that arise.

Get Quotes from a Software Development Expert

Unless the business has an internal software development team, it will likely need to hire a software development company. These companies have strong teams with broad product development experience.

The development company will ask many questions about the project to understand the scope and provide the most accurate estimate possible. Make sure to understand what the estimate includes—the services provided, design capabilities, launch and maintenance support, and so forth.

Plan for Several Iterations

Iterative development is a standard software development methodology that accelerates the process of creating a product while reducing costs and improving quality.

Software is rarely ready for release after only one iteration. Plan to go through several iterations of the product to get a product that will wow the end users and customers.

From a budgeting perspective, this can extend the project timeline and increase the labor associated with development. Anticipate additional expenses or costs.

Budget for Maintenance Fees

Once the product is released, developers must update and maintain its performance. Many development companies offer a monthly or annual maintenance service, or an internal team can take on the task. Either way, these fees need to be factored into the development budget.

Leverage Software Development Consulting Services

Custom software development is a significant investment. The rewards can be huge, but the risks are substantial, too. Careful planning and budgeting upfront can prevent unpleasant surprises down the road.

Software development consulting services can help with planning a custom software development project. Consultants have gone through the budgeting process many times and can be invaluable for predicting overlooked costs and hidden pitfalls.

David Borcherding

David is a Senior Content Writer at Taazaa. He has 15+ years of B2B software marketing experience, and is an ardent champion of quality content. He enjoys finding fresh, new ways to relay helpful information to our customers.