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How to Manage Software Development Costs

There are several effective ways to manage software development costs without affecting the software quality. It all comes down to how you manage the development process -- while staying mindful of where costs can creep up.

Software development can be expensive. A typical project demands a diverse set of skills, technologies and expertise. It takes efforts of project managers, business analysts, designers, developers, testers, QA specialists, and other professionals to deliver a quality product or solution. Besides, you may need to modify the application or add new features to it after the project has been launched, which will lead to additional expenses. Software may also require some level of third-party integration, which raises its cost as well. No wonder that you may find your expenses constantly growing.

Luckily, there are several effective ways to manage software development costs without affecting the software quality. To do that, you should understand cost factors and address them.

Step One: Choose a Software Development Model

Choosing a software development model is of utmost importance for effective costs management.

Let’s assume that we’ll be following Agile methodology. In Agile, you do not need to determine the whole project scope from the onset: it allows adding new features on the go and making changes at any project stage. So Agile is the best choice if your project is long and complex, as in such projects changes are inevitable.

However, if your project implementation takes less than 6 months and you are 100% sure in its scope, you may opt for the waterfall model. Although we are focusing on Agile below, some of the tips we will give can be useful for you as well.

Step Two: Select Your Features Based on Priorities

The mathematics are simple. The more sophisticated your project, the higher the costs will be. The way out to ensure effective cost management is to prioritize features and implement first the most important ones, postponing the rest.

MoSCoW analysis is a technique that helps to identify priorities. The letters stand for:

  • Must have
  • Should have
  • Could have
  • Won’t have this time.

Do not add a new feature until deemed necessary. You should also avoid implementing complex expensive features unless you are sure that they bring real value to users. The best time to think about augmenting the product’s functionality is when you’ve demonstrated a return on investment or increased the number of users.

To see how prioritization works, let’s consider the following example. You come up with an idea to create an online clothing store. What you should have from the very beginning is a good catalog classifying your products properly, stating their prices and showing their look. Add to this delivery services and different payment options, and you will start converting visitors into customers.

After that, you may start thinking about adding new features. Among them can be the ‘you may also like’ option to offer your would-be customers complementary goods and accessories. Or you may start providing loyal customers with special offers. The ‘form an online wardrobe’ option may help customers get expert advice about what to buy in your store. The list of features to add may be endless, but the thing is that an online store does not need all of them, at least in the beginning.

Step Three: Plan for Modifications

According to Charles Darwin, “It is not the strongest of the species that survives but the one that is the most adaptable to change.” To survive on the market, your software should also constantly evolve. Not only users ask for new and modified features but also the system on which the software runs keeps changing. In this constant race for software to fit into changing environment, is there a chance to control the cost of software development?

The answer is a software architecture that allows easy changes.

For successful software project delivery, requirements should be discovered on the go instead of fixing them at the project’s start. Besides, the software functionality should be responsive to changes and the code base should allow adding new features easily to adapt the software to varying customer’s needs. Thus, unexpected project requirements can be met with little or no reengineering, and the software design doesn’t have to be changed to accommodate new features.

Step Four: Keep a Tight Leash on Testing Costs

Testing usually takes 30% or more of software development costs. However, there are a few  ways to control the costs of testing.

  • Don’t do exhaustive testing. Address the product’s critical functionality first turn, while the features with low significance may be tested later.
  • Automate repetitive test cases to reduce manual testing efforts.

As for bug fixing, start quality assurance as early as possible. The earlier bugs are revealed, the cheaper their fixing is. Bug fixing at the requirement gathering stage is 100 times cheaper than in production.

Following these tips, you may reduce testing costs without affecting the product’s quality. 

Step Five: Control Outsourced Software Product Development Costs

You can commission software development to in-house developers or outsource it to a project team. However, outsourcing software development, you have to deal with additional risks caused by the way the project work is organized.       

Outsourcing companies most likely work on time and materials basis (T&M) and so the longer they work, the more they earn. Without enough control, you risk seeing your product development drag on. To prevent that, take care of a proper project organization.

Here’s what that entails:


  • In Agile projects, you should clearly state the scope of work to be done during each iteration. This way, you will basically get a series of small fixed-price projects instead of one big uncontrollable T&M.
  • Insist on meeting the specified iteration goals.
  • Ask the project team to provide estimates up front and compare them with the results. Analyze them regularly and do not hesitate to ask questions. It’s a good way to timely reveal if the specialists are poorly organized or lack the required competence.

If the developers successfully meet each iteration’s goals, you stand good chance to get what you want in the end.

Your To-Do List

When it comes to software development, understanding cost factors is key to their effective management. Here are the key points to keep in mind when identifying and controlling your cost factors:

  • To control the cost of change, opt for the Agile methodology to keep the project scope variable and have an opportunity to make changes at any project stage.
  • Prioritize features, introducing only those of the utmost necessity, postponing the rest of them.
  • Make sure that the software architecture enables easy changes without modifying the entire system.
  • Avoid unnecessary testing and cater for quality assurance from the very beginning of your project.
  • Keep in mind additional risks of outsourcing software development.
  • Fix the scope and budget for every iteration and control the project team performance to check whether the developers are able to meet the specified goals.

Although delivering software on budget can be a tough task, it does not seem unreal if you are aware of ways to manage the growing software development costs.   

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