When deciding to create custom software or applications, many companies wonder if it is possible to reduce its cost in some way. We know from experience that the final price of the software depends on many factors, but it can always be lowered thanks to good project preparation and process optimization. 

Problems with maintaining the planned level of costs concern many projects, especially large and complex ones. According to the results of a study conducted jointly by McKinsey and the University of Oxford, nearly 45% of large IT projects exceed their budget. 

In this article, we will provide some practical tips on how you can reduce the cost of developing custom software while ensuring its quality. 

What are the most common reasons for exceeding the budget of IT projects?

We have mentioned that there are many factors affecting the final price of the custom software. Some of them are beyond our control, but in most projects exceeding the assumed budget, it happens for reasons that could have been avoided. 

In the aforementioned study, conducted by McKinsey and the University of Oxford, the most common reasons for the increase in costs were: 

• in 13% of cases – unclear project goals and lack of focus on the business aspect,
• in 11% of cases – frequently changing requirements and technical complexity of the project,
• in 9% of cases – competence problems, including an ill-matched team and lack of necessary skills,
• in 6% of cases – unrealistic project deadlines and lack of proper planning,
• in the remaining 6% of cases, the reasons were unknown or independent of the contractor.

The results of this study clearly show that with proper specification, a software development strategy and planning, most problems could be avoided. 

What exactly can be done to reduce custom software development costs for your project?

1. Start with market research, learn about the needs of your users and make sure that your project makes sense

In the case of systems or applications that are addressed to external users and should bring profits to the company, it is crucial to determine what functions the product should have in order to be unique on the market. 

It is worth to remember that, because according to the data published on the Statista.com portal, in 42% of cases, the reason for the failure of startups that created mobile applications was the lack of market need and user interest. 

That is why, before you decide to create a new product and start any software development activities, you need to be sure that your idea makes sense. 

To achieve this, you should: 

• precisely define your target group,
• collect information about users, including demographics, interests, expectations and needs that your system or application would satisfy,
• conduct a competition analysis, learn about the products you will compete with and determine what will make your solution stand out.

Getting to know the target market and users’ needs as fully as possible is the first step towards reducing the cost of software development. 

Knowing who will use the new software, and what needs it is supposed to satisfy, you will be able to develop a list of key features of the product and its functions, thanks to which the project team will know from the beginning what should be the scope of work.  

This will allow you to create a realistic project timetable, because the software requirements, precisely defined at the beginning of the project, will not change every now and then, causing delays and increasing costs.

2. Take advantage of the experts’ experience with outsourcing and avoid costly mistakes in the software development process

One of the most effective methods for reducing the cost of creating custom software is still outsourcing, because specialists in the outsourcing model are definitely cheaper than employing them in the in-house formula. 

According to the data published by Accelerance in the report “2022 Global Software Outsourcing Trends and Rates Guide“, the average cost of hiring an in-house specialist is $83-112 per hour, compared to $40-90 per hour in the case of outsourcing. 

Other, additional benefits, apart from direct savings, which the use of outsourcing in the development of custom software can bring your company include:  

• access to a large pool of qualified specialists employed by the software house, without the need to recruit them on your own,
• greater flexibility, thanks to the ability to quickly expand the team with additional people when specific skills are needed,
• increased productivity, while reducing employee training costs,
• the opportunity to focus on other important business activities, thanks to the support of the software house in project management,
• certainty that the team will use the most optimal solutions and technologies, thanks to the contractor’s experience in similar projects,
• significant reduction of the risk of project failure, resulting in the loss of funds that have been invested in it.

The fact that companies see the benefits of outsourcing software development can be seen in the systematic increase in the number of companies that outsource all or part of their programming work in to a software house. According to the data published in the aforementioned Accelerance report, in 2021 it was 56% of the surveyed enterprises, and in 2022 – already 60%. 

If you would like to learn more about the scale of savings that outsourcing can bring to your project, please book a 30-minute, free consultation with our experts. 

You can also find useful information on our blog, where we regularly publish articles devoted to this topic, such as Outsourcing of IT specialists & teams. Costs, pros and cons of staff augmentation model. 

3. Make sure your requirements are clearly defined and documented from the beginning of the project

Regardless of whether you decide to create custom software for your company based on outsourcing or by an in-house team, you must ensure that technical requirements are clearly defined and properly documented. 

Lack of specifics or incorrect interpretation of the requirements, caused by their unclear form, translates directly into an increase in project costs. 

In addition to additional work needed to correct errors, resulting from poor specification of requirements, companies that start complex IT projects without a thorough analysis of their business needs and reflecting them in the documentation risk that the final product will not meet their expectations. 

The costs of errors made at the stage of defining system requirements are significant – according to the data cited by Donald Firesmith in the article “Common Requirements Problems, Their Negative Consequences, and the Industry Best Practices to Help Solve Them“, only in the United States alone errors in the requirements cost US companies over $30 billion a year. It should also be taken into account that the more advanced the project is at the time when we detect and attempt to fix the error, the higher the cost will be. 

According to the results of research published by Roger S. Pressman and Robert B. Grady, the cost of fixing a bug after system launch is 80 times higher than in the case of its correction at the stage of defining system requirements. 

In addition to avoiding costly errors, devoting the right amount of time and resources to accurately specifying requirements as early as possible translates into many other aspects of the project: 

• helps you to find the right software house,
• allows for accurate estimation of software development costs,
• allows you to choose the most appropriate technologies and solutions,
• helps in communication with a team of programmers who know exactly what is expected of them,
• reduces the risk of misunderstandings resulting from unclear expectations.

A useful tool that can help you at the early stage of defining requirements is a brief for a software house, about which you read learn more in our article – How to prepare a brief for a software house? A step-by-step guide for the Client. 

4. Take the time and resources to plan software development properly to avoid unforeseen expenses  

According to data published by the ResearchGate.net portal, the reason for failure in nearly 39% of IT projects is the lack of proper planning. 

Any changes of project scope during the work translate into additional time and costs, which is why proper planning of both the functions of the software and the way it is created is crucial for the success of the entire project. 

At this stage of work, if we have already chosen a software house that will work on the project for us, it is a good idea to prepare discovery workshops that will allow us to discuss and specify the goals of the project, requirements for the software house, and expected results. 

A well-conducted discovery workshop will result in a clear, realistic action plan that will serve as a starting point for developers. 

Properly prepared discovery workshops provide all the materials that can be used to start further work on the product, such as:  

• product vision,
• project roadmap,
• technology stack,
• product development strategy,
• sketches and mock-ups,
• list of key functionalities,
• initial project budget,
• project timetable.

The importance of early planning of all relevant aspects of the project, with the participation of all stakeholders, is important for the success of the project, as can be seen in the example of one of the banks cited by McKinsey. 

When designing the system, the needs and requirements of each of the departments that were to use the system were not taken into account, and only a few months before its planned launch, the financial department was involved in the work. This led to a change in the scope of the project and major modifications to the accounting modules, which were related to the recent introduction of performance management software and the need to integrate both solutions. 

Changes that had not been planned and were made so late in the project delayed delivery by 3 months and increased costs by additional $8 million. 

5. Ensure good communication with the entire project team

In the case of each IT project, not only the development of custom software, efficient and clear communication is crucial for the success. 

According to data published by the Project Management Institute (PMI), projects started by companies in which effective strategies and communication tools have been implemented have a 28% greater chance of achieving their goals, 34% of delivering a solution on time, and 28% of stay within budget, than in the case of companies with ineffective communication.  

It is worth remembering that even the best documentation and planning will not ensure success if you have difficulties in communicating with your internal team or softwre house. 

Misunderstandings resulting from poor information flow pose a real threat to the project and increase its costs, so it is worth paying attention to this issue. 

6. Choose the right tools and technologies that will save time and reduce costs 

We have already mentioned the benefits of cooperation with an external partner for your project. In addition to lower work costs in the outsourcing model, it is also worth considering the importance of choosing the right technologies for the success of the project. 

In this context, the term technological stack (or software stack) is often used. It is the entirety of programs, applications, databases, frameworks and other types of systems and technological services that were used in the development of your custom software. 

Choosing the right technologies and tools can be complicated if you lack experience in this area. This is because certain tools work better or worse when developing different types of software or applications. A properly selected software house will certainly help you, by choosing the right solutions that will allow you to avoid the most common problems that may arise in the software development process and the related costs. 

Used programming languages and technologies will translate not only into the costs of creating and maintaining the system, but also the possibility of its further development, efficiency and scalability. 

 7. Choose a partner that uses the DevOps methodology or implement it in your team

DevOps is a methodology that focuses on improving efficiency and productivity at every stage of software development, with the use of appropriate tools and practices for automating and integrating processes. 

More and more companies decide to use this methodology, because properly implemented, it brings measurable effects, the scale of which is well illustrated by the data published annually in the “Accelerate State of DevOps Report” by the DORA (DevOps Research and Assessment) team operating within Google Cloud.  

For example, in 2021, as many as 46% of companies that implemented the DevOps methodology recorded a decrease in software development costs, and 42% declared an improvement in the quality of the created systems.

Effective implementation and use of the DevOps methodology requires deep changes in the organizational culture and the way teams work. 

At SOFTIQ, we understand that the use of DevOps practices is not only the automation and optimization of processes using the latest technology, but above all a change of mentality, thanks to which we have created a friendly working environment for DevOps teams. 

Find out more about the DevOps practices we use or contact one of our consultants if you would like to know the details of our offer of DevOps services.  

8. Consider building an MVP version of your product to validate the idea and improve the final product 

  MVP Development services (development of a working product with a minimum set of functions), are becoming more and more popular among customers. Although it is not a final product, it allows you to interact with users, collect their opinions and find any errors at an early stage.  

The main benefits of developing software in the MVP model include: 

• savings in time and resources – thanks to the quick verification of initial concepts, further development of the software can be properly planned, saving your time and money,
• quick feedback – in the case of some projects, the functional version of the MVP can be created in just a few weeks, giving you the opportunity to quickly collect user feedback and make a decision on further development of the project,
• getting to know the needs of users – MVP allows you to assess what functionalities will be useful at a later stage of project development, as well as how to properly plan future marketing activities,
• risk mitigation – thanks to the possibility of testing initial concepts, measuring the level of interest in the product and early detection of potential problems, the risk associated with the development of the software in the classic model is significantly reduced.

Having in mind how much the cost of changes in the system and the removal of previously undetected errors increases in the late stages of the project, it is certainly worth considering whether in the case of your initiative, developing a version in the MVP (Minimum Viable Product) model will not be profitable. 

9. Implement Quality Assurance (QA) and Quality Control (QC) practices from the start and ensure proper product testing

Quality Assurance (QA) is a process focused on designing and implementing software development procedures in the company that will allow to detect potential problems as early as possible and eliminate them. 

Thanks to the consciously planned and systematically implemented Quality Assurance (QA) process, we can guarantee that all quality requirements will be met, which will translate into the highest quality of the created product. 

Quality Control (QC) is a process in which we analyze whether the quality requirements for software, defined under Quality Assurance (QA), have been met and what deviations have occurred. 

The purpose of activities carried out in the Quality Control (QC) process is to identify and repair quality defects and irregularities that appeared at various stages of project development. 

With properly planned and systematically implemented Quality Control (QC) activities, we can be sure that the quality standards determined for the project are met, and any deviations are quickly identified and repaired. 

The role of tests in ensuring the quality of software and reducing the cost of its development

Some companies skip testing completely, treating it as an unnecessary, additional cost in relation to the overall price of a custom software project. This approach is usually the beginning of serious problems, because although the right number of tests increases the cost of developing a system or application, it can ultimately determine the success or failure of the entire project. 

According to data published in the Consortium for Information and Software Quality (CISQ) report, only in 2020 American companies lost about $2.08 trillion due to poor software quality. 

The scale of losses caused by the lack of tests may vary, depending on the type of error and its consequences. Among the many examples of the most costly programming errors, the Ariane 5 rocket disaster is often cited. 

The task of the rocket was to launch 4 satellites into orbit to study the Earth’s magnetosphere. 

On June 4, 1996, after only 40 seconds of flight, the rocket exploded. The Ariane 5 disaster cost was about $370 million and delayed the study of the magnetosphere by 4 years. 

The investigation showed that some of the software installed in Ariane 5 was originally developed for its predecessor, the Ariane 4 rocket. However, when transferring the software, its correctness was not thoroughly checked, and no tests or simulations were carried out. 

Among other things, not taken into account, was the fact that the earlier rocket used a 16-bit version of the code, while its successor needed a 64-bit version due to other technical parameters. The result was a conversion error, leading to the so-called “integer overflow”, memory overload, and ultimately, rocket explosion. 

It is worth remembering that there is no such thing as a perfect IT project – smaller or larger defects will always appear. But most losses can be avoided when a proper software testing process is in place during development and deployment. 

Testing your system at every stage of the design cycle is a must. With properly selected and conducted tests, we minimize the risk of errors and guarantee the highest quality of the product. 

SOFTIQ specialists are competent in the field of: 

• selection and implementation of tools supporting the testing process,
• creating test scenarios,
• conducting any type of test, depending on the project needs,
• quality assessment and optimization of test processes.

Depending on the specifics of the project and the tested element, we carry out tests in both manual and automatic form. 

10. Choose a model of cooperation and pricing that will allow you to control the costs of the project

Each company starting cooperation with a software house has to make a critical choice regarding the best contracting model. Two cooperation models most often used in software development are “Fixed Price” and “Time & Material”.  

Because they are significantly different, you should understand their specifics to be able to choose an option that will allow you to adjust the budget and work schedule to the specifics of the project.    

The decision on which pricing model to choose is of key importance not only in the financial aspect but also affects the building of positive and long-term business relationships between the software house and the Client.   

One of the characteristics of the software development process is the inability to predict and plan all the variables. There are so many factors at play, both on the part of the Client and the software house, that there is no single, universal contract model that would fit every project.  

When looking for a software supplier and analyzing the offers received, we should focus on those software houses that are willing to adapt the project contracting model to the specificity of the customer.    

Often, during consultations with our clients, we hear that many suppliers are not even willing to consider projects in the Fixed Price pricing model, proposing cooperation only in the Time & Material contract. While in the case of some projects this may actually be the best contracting model, it is certainly not universal and for some industries or types of software, it is not optimal from the customer’s point of view.  

For this reason, it is common to believe that in the case of a Fixed Price contract, the client does not receive the lowest possible offer, while in fact less control over the budget in the Time & Material model may result in a much higher final cost of the project.   

Summary

Choosing strategies that will save money without compromising the quality of the final product can be difficult without the right experience. Often the best way to reduce project costs and ensure the highest quality is to choose the right software house that will ensure optimal development process. 

Regardless of the type and scope of services you are looking for, the decision to choose a specific software house will be crucial and will translate into every aspect of future cooperation, both in financial and organizational terms. 

If you are wondering how to approach the choice of a partner and what to pay attention to, we encourage you to contact our consultant or read our articles – “How to choose the best software house for your project” – part 1 and part 2. 

More useful tips on how to effectively manage the IT project budget can also be found in our e-book: 

This post is also available in: Polski (Polish)