Software projects often get out of hand. The hours and development efforts exceed the expectations. The deadlines are not met. The expenses inevitably go beyond the expected budgets. We’ve all seen this happening.


Let’s focus today on the cost estimation with every detail you might need to comprehend it, and the indispensability of the task for creating a successful project. We’ll talk about the most common difficulties you might face when tallying up a software development budget, give you an idea of the most popular techniques, and approaches to calculate the costs, and provide with a great tool to estimate your project costs.

Why software cost estimation is crucial for a project’s success

Different sources describe these reasons in different ways. We read them all. Then we applied our own experience. And ascertained the importance of cost estimation in project management as follows:

  1. It allows us to define the scope of work.
  2. It allows us to outline the time and effort necessary for developing the project. So we can come up with an appropriate schedule.
  3. It allows us to clearly see what aspects of the upcoming project will be the most expensive ones. Knowing this we can prioritize more efficiently.
  4. It helps to define and negotiate the milestones of the upcoming project.
  5. Finally, it helps us understand if the project is progressing according to plan. And take corrective measures if it doesn’t.


The common difficulties you might face when tallying up a software development budget

Most often the task of calculating the costs falls on the shoulders of an in-house project manager or a business analyst. This in-house specialist can have some experience estimating the development costs. But how many big projects can one person manage? Even in 10 years of working in project management. Even if the person mastered all the methodologies and calculating techniques. There’s inevitably a lack of data on completed projects. Especially the big ones.


Another difficulty the project manager might have is the lack of understanding the system that is to be developed. This happens when the calculation is done in a hurry. Or the budget is requested before the system requirements have even been contemplated.


Complete and clear specifications are hard to write. Especially on the first stages of a project. The person who does the cost estimation has to take into account that the changes and additions occur more than they expect. So the budget has to be easy to adapt as well. Unfortunately, this is often overlooked.


The speed of information technology evolution also creates a difficulty for cost estimation. It is quite difficult to predict how new methodologies might influence the estimated project.


The time a project might take is often hard to estimate as well. It heavily depends on the factors that are hard to determine:

  • the experience and location of the development team
  • the commitment and involvement of the other teams
  • complexity and size of the software to be developed

Finally, in-house project managers often tend to underestimate the costs to a degree. Just to make it look more acceptable to the stakeholders.


Software cost estimation techniques, approaches, and models

There are numerous researches that provide different models and techniques. The model usually depends on the chosen approach and method. Here are some of the most popular methods.


Top-down approach. With this method the whole project is estimated, deriving from its global characteristics. The total sum is then split among the various project elements.


Bottom-up approach. With this one each project component is estimated by the person that will be developing it. Then these individual estimates are summed up, and we have the overall project cost.


Expert judgment method. This method implies consulting with an estimation expert. Or a group of experts. They use their experience and understanding of the upcoming project to calculate its cost. The Delphi Technique is often used with this method.


Estimation by analogy. Some sources call this method Empirical Estimation. It implies comparing the upcoming project with the similar projects completed previously.


Algorithmic method. Software cost calculation with this method is done with mathematical equations. These equations are based on historical data and endless research. This method is well documented and very popular. There are a lot of models developed for it. Some of the most popular software cost estimation models are:


Let’s look at a project cost estimation example done with the basic COCOMO model.


COCOMO defines three types of projects: organic, semi-detached, and embedded. For example, the basic COCOMO formula is:


  • E — total effort the project requires in Man-Months (MM)
  • time — total time for project development in Months (M)
  • KLOC — the size of the code in Kilo lines of code
  • a, b, c, d — the constant parameters
Project TypeABCD
Semi Detached3.

How to Use Fulcrum App Cos Calculator

As you can see, software cost estimation is rather hard to do yourself. We at Fulcrum receive dozens of requests for appraisal of a project cost daily. In most cases these clients need a quick idea of the time and money their project will require. Not accurate to the dot calculation.


So, after doing dozens of these estimations, we came up with an idea to create a free cost estimation tool — Fulcrum App Calculator.

The calculator is designed to provide a quick high-level estimation of your project cost. What will you get if you try it:

  1. Hours the app development will take.
  2. Ballpark price of the project. We calculate it based on the average rates for development in Ukraine.
  3. An estimation of PM, BA, QA, and Design hours.
  4. Team structure the project will require.
  5. Optimistic and pessimistic prognosis.
  6. All the above estimates sent to your email in a minute.
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FAQ: software cost estimation

  1. What is a cost estimation?
    It is a calculation of resources (time, money, and effort) a potential project will take to be developed and released.
  2. Why cost estimation is important in project management?
    With cost estimation properly done your app is much more likely to stay on track when in development. Schedules, budgets, and prioritization depend on cost estimation.
  3. How to calculate project cost estimation?
    You can use one of the popular techniques and models. Or you can use our free App Calculator.