Software Development Cost Estimation- How to determine the cost and plan the budget for your software? Explained!

Design and DevStartups
Quick Summary:

A cost prediction for software development is what every business owner wants. However, many factors and elements are required to make the cost prediction. All these factors are necessary, and everyone who is investing in the software development procedure should know about them.

This blog will walk you through all the necessary points that entail the cost estimation of software development. Keep reading to know more!

When it comes to developing software for your business, there will be many questions in your mind. Your questions can be related to development or the developers you need to hire, but most importantly, the question that will be stuck in your mind would be the price estimation of your software project.
When you have a precise idea of the cost incurred during your project, you are one step closer to success. There are a few factors that will affect the cost of your project and when you know these factors, you can get the estimation of the software development project with ease.
The cost can be dynamic because of new advancements, methods, and technologies. When you decide to get the software, it is the question of your money. In this article, you will get an idea of what factors you need to consider to accurately estimate the whole procedure.
The following can be the factors that will help you in getting the estimation of cost-

1. Cost Estimation in Software Project Management:

During the project, there are so many things that will be linked to the project like labour cost, overhead cost, and vendor cost. This is the first step where you need to consider the direct and indirect costs of your project. When you calculate these costs, please do not misunderstand it as a total cost as it is the fundamental cost, and there will be many other things that you will have to contemplate in order to get the precise cost estimation.

This will cover the labour cost, overhead cost, and vendor fees.

2. 3 Models that can be used for cost estimation in software development projects:

Empirical Model

This technique mainly involved the previous data collected on similar projects, some guesswork, and some assumptions. In this technique, evidence-based formulas are applied for making the prediction. It is considered a crucial component of the software development project.
This technique also requires prior experience in the same project for better results and prediction. An educated guess of project parameters is made in this project.
When it comes to empirical estimation most of the techniques lean on mostly rely on the acumen and different activities that are linked with the estimation procedure over the years.

Heuristic Model

The word Heuristic is a Greek word that means ‘to discover and its meaning sums up everything here. This technique helps in addressing the problems, solving them, and also discovering the solutions for achieving the immediate goals.
The arrangements by this technique might not be ideal but are adequate for the prompt aids. Sometimes while developing the projects if any complex situation comes, Heuristic techniques come to the rescue. This estimation technique is adopted while dealing with difficult situations so that one can get the solution as early as possible.
The techniques help you to understand the relationship of the various relationships between different project parameters with the help of mathematical equations. This amazing and popular technique is given by the Constructive Cost Model (COCOMO). In a nutshell, the model uses regression formulas to know the parameters of the market by using the data as well as the characteristics of a particular project.

Analytical Model

The analytical estimation is mainly used to measure the work. The task is broken and divided into the basic components of operations or elements of work, and this is the first step of this technique. Next, if the standard time is available from the other source, at that time, these sources will be applied to every possible element or component of the work. Lastly, if there is not much time left, the work will be estimated based on the experience of work done in the past on the projects.
Therefore, this technique has a unique way of analyzing the estimations and it may include some scientific basis. Many businesses are using this technique to get the estimation of their software project.

3. Understanding the different types of estimate

When you also want to know the perpetual cost, there are 3 different types of estimates that you need to understand the types of estimates that will help you get the idea about the estimation. You should know these types and make your cost estimation procedure much easier. So, what are these three types of estimates?
Check out this to know more:

Rough Estimate(ballpark)-

Rough Estimation or ballpark is the approx estimation of the cost of your software project. It is the most common and most used estimation in our daily lives. Similarly, you can use this type to know what rough amount you will need to complete the development procedure of your software.
This estimate aims to give you an idea about whether or not you have the ability to pursue the development of software, keeping the rough estimate number in mind.

Budget Estimate-

When you want to make plans and strategies, there starts the role of budget estimates. Most of the time a client will use this budget estimate to understand whether or not the developers can make the software within the set budget.
The use of budget estimates is for both developer and client since it allows them to prioritize the factors and resources. This phase will also include the risks to keep the client and developer ready for future situations.

Statement of Work(SoW)-

The main purpose of this estimate is to define the activities that are related to the project, timelines for the project, and deliverables. Thus, the client would be very clear about their wants and would ask the developer to make the on-target budget estimate.
Now that you know about the fundamental requirements of calculating the software development cost estimation, Let us ponder the other things that are used to get the accurate budget for software development.

4. Techniques that can be used for estimation


This technique is carried out by senior-level experts who use general information about the project. It starts with discussing the goals along with the final results of the project and once decided, it is broken down into different parts. Later, each part is designed and discussed in detail and the team polishes it to a greater depth to make it perfect.
When you have envisioned what you want from the project you are investing in, only then pick the top-down technique.


This method is much broader and time-consuming as every aspect of the project is analyzed here. During this estimation technique, the team focuses on the details of all the clients to elaborate on the lowest level of appropriate arrangements.
Usually, the members who took over the project will analyse the cost of the software development since they are in a better position to do so. When compared to the top-down technique, the bottom-up is considered to be more accurate and reliable.

Analogous Estimation

This technique involves analyzing the historical data of a similar project and there is no manipulation or any extra calculation in it. Basically, it is the expert judgment given after going through the historical data, and to apply this method for estimation, you will need documents and data to go through the historical data.

Planning Poker

This is one of the unique techniques since it is more like a game. Here, you will get the estimation based on the consensus. It is mostly used in agile methodologies, and in a poker planning session, one person explains the features of the software to estimators.

During that time every team member will hold the poker cards, and each one of them will be valued between 0 to 100.

In this process, if the estimator selects the number that matches the cards, then it eventually becomes the estimation of that project.

5. Mistakes that can happen while planning the budget estimation or project cost planning-

The sole purpose of knowing the budget estimation is to stay prepared for the whole procedure. If there is any mistake committed during the estimation procedure, then it can affect the whole planning of your development procedure.

Here are some common mistakes that are likely to happen while planning the budget for your software development project-

Mistakes made by Client-

  • A client might bring in an out-of-scope task even though some are part of the plan but, if the client is not clear about the functionalities he is looking for, it may cost him extra.
  • Sometimes by mistake, the client may give erroneous information to the developers, which results in a waste of time because now the developer will have to work extra to make the changes because it was the mistake of a client. It can change the cost of the whole project for sure.

Mistakes made by the Developer-

  • An inexperienced and underqualified team can be one of the biggest factors because sometimes you might fall for the false promises of a developer that they fail to deliver. This not only adds cost to your project but will also be time-consuming.
  • Most of the time, developers forget to contemplate the possible risks of the project. If they do not review these risks at the prior step, it might be difficult for them if the problem occurs during the software development process.
  • Even after the whole research, there are chances that the developer might tell you the wrong information or estimation of the project, and after completion of it, they tell you more charges than they told during the estimation. Improper budget planning or wrong budget estimation can be one of the reasons for a budget increase and a most common mistake while estimating the cost.

6. Top 5 tools for Cost Estimation-

You will need some good tools for the estimation of your budget. Some amazing tools help in reckoning and evaluating statistical tools and many other things to then get a clear-cut estimation of a software development project.

Here’s the list of 5 great tools-

  • Concerto
  • Microsoft Project
  • JIRA
  • Spider Project
  • Primavera Project Planner

7. What is the Reason behind Estimating the software development cost?

Having a proper budget for your project is one of the ways that can make your software development plan successful. Estimates are an inevitable part of this procedure because you will be already prepared for everything at the previous stages since the planning will have all the important considerations in the first phase.
The on-point estimations will bring 4 benefits to the whole process-
  • Improved Resource Management
  • Sound and prepared planning
  • Smooth Development
  • Strong relationships client
  • Better reputation in the industry
The project manager has to align 6 things while working on the software development project- Time, cost, quality, scope, risk, and resources. Keeping this in mind, the estimation of software development costs can help them a lot.

8. How much does it cost to develop the software with the experts of AspireEdge?

Being precise about the budget for developing software is a very difficult thing because there are so many things that may or may not occur at different stages of development.

However, at AspireEdge we believe in transparency and honesty, and we will try to give you an accurate budget because we know that a precise estimation is the only between a successful plan and a failed one. So, we consider all the necessary things and then offer you the budget.

We believe in quality, and we assure you the best. For more details, you can get reach out to us. Drop a mail at hello@aspieedge and let us know your questions and queries. We will be happy to answer all your queries and assist you.

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