How to Accurately Estimate Credible Project Cost?

Constant evolution and turning adversities into opportunities is the fundament on which new-age businesses survive and thrive. Be it including the right kind of technology or understanding the ever-changing likes and demands of the targeted audience, businesses have to dig deep to get their desired success.

To make your digital platform, be it software, mobile app or website reach targeted audiences, you need to have an astute project plan with a reliable cost estimation of digital product development. Especially for startups, getting credible cost estimation is essential as it helps them set the project’s tone in the right direction. The project cost estimation depends on whether you choose to outsource the project to another country or in your own country.

Accurate cost estimation would help business persons make better decisions about the product and maintain their budget.

What is project cost estimation?

Before the project is kick-started, it is vital to conduct accurate project cost estimation. Project cost estimation is concerned with predicting the overall cost of a project by outlining the project’s scope of work.

While estimating the cost of the project, the business owners need to look at various tasks that need to be completed, the resources required for the project, and the project’s total duration. Accurate project cost estimation helps the project owners manage the budget right throughout the duration of the project.

Getting the cost estimate right can prove to be the difference between success and failure for a project.

What is a Project Cost Breakdown Structure?

Whenever you start a project of any kind, cost estimation is the most important aspect of determining the project’s overall budget. A project cost breakdown structure represents all the services and processes that will add to the overall cost.

A cost breakdown structure is a hierarchical depiction of project expenses arranged into several degrees of detail. It is a useful resource for creating precise job estimates. Since it is very difficult to estimate the cost of a work package from a high-level need, the budget may be more accurately met by dividing the cost into smaller packages.

Why is project cost estimation important?

Creating a strong project plan for your project requirement requires being able to estimate costs accurately. Numerous methods are used in project cost estimation to convert the project’s scope into deliverables and estimate the price of the resources required to finish the project’s tasks.

Accurate cost estimating is critical for developing a software product budget. It enables organizations to allocate resources properly and guarantees they have the finances to execute the project successfully.

A project’s rationale for the resources the team will need to complete its tasks must be submitted for approval. Usually, it also depends on what type of team you have engaged your resources into for developing your digital product. The software developer team size, the resources they use, and the timing factors are important when selecting an engagement model to hire developers.

Types of Project Costs

Below are some types of project costs that you should be aware of:

Direct Costs: Direct costs are expenses that can be directly and individually linked only with specific project/cost centers. Such cost is associated with its execution in a project approach. Such examples of direct costs comprise the labor cost for the project’s team members, licensed tools used in the project, fees paid to other domain experts, leasing of special gadgets or devices, and travel expenses (in case of on-site software product development) linked to the particular project being discussed.

Indirect Costs: Indirect costs refer to costs that cannot be specifically linked to any particular project but are required to run an operation as a whole. These expenses arise with the passage of time and span numerous projects. Some indirect costs involve office leases, utility bills, project designer and developers’ salaries, and office infrastructure.

Fixed Costs: Fixed costs are incurred for a specific time frame and volume of mobile , web and software development project.. These costs remain constant whether or not the project is operational.

Variable Costs: Unlike fixed costs that remain unchanged with an increase or decrease in project activity levels, variable costs rise directly within the same degree as the project’s activity.

As more work is carried out and more output is produced, variable costs also increase. Hourly wages for extra labor, tools used only when needed in the project, and power consumption for extra resources or machines specifically used for the project are examples of variable costs.

Sunk Costs: Sunk costs refer to the cost that has been incurred already and cannot be obtained back even if the project goes ahead or fails. Such costs should not impact future decisions about a project as they are not related to the current or forthcoming economics of the project. Expenses for software project research and development in competitive markets are some of the examples of sunk costs that occur while building the project.

Steps to prepare a good project description to get the most accurate cost estimate

An accurate project description can help business owners to get a precise estimate of the budget required for project development. In order to do that, the entrepreneurs/project owners must take the following steps to prepare a good project description.

Summarize

The project owners must write a summary of the project, which briefly explains the project’s aims, benefits, and expected outcomes. The summary of project should be short, and it should avoid unnecessary words and expressions.

Justify

In this description step, the project owners must identify the business drivers that determine how the project will impact the organization’s performance. Justification of the project is crucial because it proves why the project is vital for the organization.

Evaluate

In this step of project description writing, the project owners need to conduct a cost-benefit analysis of the project and assess the benefits that can be gained upon successful completion of the project.

Approach

The project managers must have a proper approach for the project that answers questions like how to phase the project? and what should be the lifecycle of the project? The approach of the project involves selecting, describing, and approving a method that is efficient for implementing the goals and objectives of the project in the current operational environment.

Schedule

The process of scheduling is concerned with conducting a primary estimate of the time required to finish the project. Before starting any project, the project managers should develop a timeline that shows the total estimated amount of working hours required to complete the project. This timeline will help to develop the project schedule and get an estimate of the various activity durations.

Resource requirement specification

In this step to prepare description of project, the project owners ask the handling managers to state the resource requirements for the project. The resources are the people, money, or equipment required to finish a project. A proper estimate of the resources required would help the business owners get an accurate estimate of the entire project. In addition, a RACI (Responsible Accountable, Consulted, Informed) chart can help the project owners decide the roles to distribute among technical resources.
A RACI chart is a matrix of all a project’s tasks. It shows who is responsible for the work, who is accountable for it, who can be consulted, and who needs to be informed about the project.

Things required to receive the most accurate cost estimate possible

For a successful project cost estimate, there are some important things that you need.

The project owners should consider the following factors to receive the most accurate estimates that are beneficial to know about:

Documentation

Identifying the activities and resources you require is the first stage in software development cost (and is made simpler if you have a good resource management mechanism in place).

It is easiest to do this by breaking the project up into smaller, separate jobs. Naturally, the work list will vary depending on the project. However, the first stage will divide the project into distinct jobs, making it simpler to determine how you would describe your project and how much each will cost when assigned to project developer team members at a flat rate or hourly rate.

Credibility

The next thing you must do is ensure you have enough workforce with the necessary skill sets to do the job. This could mean considering the best websites to hire remote developers to help with the project development, especially if the team is spread out and works from different remote places. How much the project will cost depends greatly on how strong your team is, in-person and globally.

It all boils down to how strong the development team is. Recognizing whether their team has time on their calendars to take on additional work is one of the team leaders’ main challenges. This is probably due to insufficient capacity planning, which helps assess whether sufficient individuals can complete a project based on availability and skill sets.

Verification

Team leaders frequently overestimate how long projects will take. However, it’s crucial to be realistic when predicting estimated project costs – for the sake of both your project and, more crucially, your team.

However, time monitoring offers an even more reliable technique to estimate how long a customized software development will take. This can ensure your company tracks and verifies the tasks on time. With best regards, you can also hire remote developers to develop your product in a way that benefits you the most and makes all verifications easier.

Risk identification

A critical step in creating the most accurate project price estimate is to evaluate potential risks and hazards. These dangers may include unanticipated technological difficulties in project cost estimators and outside variables like market fluctuations or changes in rules. You may prepare for these uncertainties by carrying out a comprehensive risk assessment.

Considering probable difficulties and uncertainties, you’ll have a more accurate budget estimate if you include risk identification in your project cost estimating process.

Scope in detail and with accuracy

Before beginning the project, the project owners need to define the scope of the project and its core functionalities.

For example, if the idea is to build a sports fantasy app, the project owners need to add fun games and easy payment methods to keep the users engaged on the app for a longer period. The app may need third-party integrations, and thus their cost should also be included in the project cost estimation description.

Defining the scope of the project will help the project owners begin their project on the right note. The knowledge gained from this exercise can be utilized to develop a more competent MVP.

To receive the most precise estimates, business owners should focus on providing comprehensive documentation. By documenting their idea, the project owners can refine their scope and help the developers understand their vision. In addition, proper documentation will help the project owners get an accurate estimate and ensure that the development team can finish the project smoothly.

Establish technical ground rules

To develop a unique product, the project owners need to be sure about the technologies used. Therefore, setting the basic technological rules will not only make the cost estimation process fast, but it will also allow the businesses to be at par. Knowledge of technology will help keep the project owners in sync with their IT service providers throughout the development process.

Collection of data

The project owners should prepare their cost estimations for projects based on the acquired historical data. This way, they will be sure about the mood of the market and foresight of the trends that are going to shift the paradigm in the future. The data obtained will further guide and help them develop similar kinds of projects in the future. Project cost estimation based on the collected facts and data will provide highly accurate forecasts.

Project’s Features list

The developers can’t provide the project owners with an estimate if they do not understand the project’s features. Therefore, while preparing the feature list, the project owners should conduct thorough research to include all the features that would help the project achieve its desired targets.

Once the feature list is ready, the business owners should prioritize the features based on their importance.

The MOSCOW method can prove to be an excellent method to prioritize the features based on their significance in the project.

Mo: These are the list of the must-have features that will form the core of the project

S: This list will have the ‘should have’ features which, if included, will make the project a cut above the competition

Co: These are the ‘could have’ list of elements. These are nice add-ons for the product, but the product will not lose its shine even if they are omitted.

W: The ‘won’t have’ elements will feature in this list. This is by far the most crucial feature of the MOSCOW method as it refrains the project participants from distracting from the project’s core objective.

The MOSCOW method helps business owners track the project better and prevent unnecessary expenses by helping to exclude unnecessary features in the project.

Deadline

The project development team needs to be aware of the deadline by which the project must be delivered. If the business owners need to build a project with many complex features, it will take more time to build the project. More time means more development hours, which ultimately turns into higher costs.

Review and validate the estimates

There is no harm in reviewing the cost estimation for projects before going ahead with the project development. This process also involves checking the underlying data for better accuracy based on established costing notions. Moreover, the organization should refer to the cost indices when the up-to-date data related to their particular project is unavailable.

In addition to this, one should validate the logic, techniques, and operations that went into defining the project cost estimation as it will be vital for future reference. If there is a mistake in the logic or the flow of the operation, the estimation itself becomes untrustworthy. It thus would need to go through a significant revamp. Moreover, better documentation will help in validating the cost estimations in a synchronized manner.

Conclusion

The project cost estimation process is teamwork. The developers listen to the client’s vision and estimate the costs based on viable and essential features. While some aspects of a project are easy to estimate, others are more complicated. With so many factors involved in building a project, the art of cost evaluation is complex and unique to every development company. While evaluating project cost, the experience and skill set of the developers should be taken into account as well.

You can share your project requirements with TopDevelopers.co, and we will help you get the best project estimate for your project.

Frequently Asked Questions

What are some reasons that a project cost estimate may be inaccurate?

Project cost estimates can be inaccurate for many reasons, including needing more experience or having personal preferences. To avoid these mistakes, you should give accurate project descriptions by listing tasks and the resources needed to complete them.

What makes a good project cost estimate?

Realistic and accurate project cost estimates are the best ones. To do this, it’s important to fully and thoroughly understand the project’s needs, such as its scope, timeline, and resources. It’s also important to have a clear and organized way of estimating costs that considers all the important variables and factors of a project.