Master of Budgets, or Let's Craft a Software Development Budgeting Plan

MAR.22.2022

How to Сreate a Project Budget: The Beginner`s Guide

Semyon Scherbak
Business Analyst at Freshcode
Alexandra Lozovyuk
Content Strategist at Freshcode
Reducing costs at a certain stage of software product development without sacrificing quality is the right way to save resources and stay effective. But cheap at the start can turn into expensive afterward.

How to balance between extra cash and cost-saving? Where to spare and where to make a budget buffer? How to handle the IT project budget planning accurately and intelligently?

To help you deal with it we've prepared a brief guide on how to create cost estimation for software development projects. It will come in handy whether you need kind of how-to for your first IT project or want to hone your estimation skills.
Software development project budget 2022><meta itemprop=

THE IMPORTANCE OF BUDGETING

If you skimp out on crucial things, there is a risk that you'll have to pay a steeper price tomorrow.

That's why proper budgeting is a vital part of the initial stages of every product development process. It helps you control your spending, track expenses, save costs and make better financial decisions. Moreover, it is your airbag to prepare for emergencies and prevent over-budgeting.

Every project budget is a dynamic document, continuously reviewed and updated throughout the whole project lifecycle. Generally, it is about:

Setting expenditure expectations
Tracking funds
Completing activities over each project phase
Measuring project development performance
With a well-prepared budget plan, you are intentional with where your money goes and have guarantees that your project will be delivered timely.

Let's explore a little bit more how businesses benefit from professional budgeting planning.

Project budgeting pros benefits><meta itemprop=
Accurate calculation of the resources. It is important to come up with detailed estimates for the project cost. Once it is calculated, you add up the cost and resources estimates into a budget plan.
Refined decision-making process. The budgeting of each project can provide validated guidelines for decision-making and future planning. By looking at every stage, from estimation to budget adjustment, businesses can make balanced decisions based on a comprehensive analysis of the budgeting implementation and historical data.
Prioritized and structured project tasks. With clear estimation and budgeting of each project activity, you can pinpoint key areas that need paramount attention. Priority-driven budgeting identifies tasks that offer the highest value and refine micromanagement of the product development. In prioritization strategy we trust.
Unlocked features of business forecasting and BI. Do you want to be a business prophet? With the wisdom extracted from successfully implemented budgeting plans, it becomes a reality. The budgeting process is predestined for the integration of analytical methods to predict future scenarios and best solutions like a boss.
Sharp-witted project management. The most influenced IT project management strategies are implemented with the participation of great business analytics and budget managers. Tracking budget changes, submitting transfers, and requesting payments fill the project management machine with fuel and make the product development track smooth.
Saved time and costs. Proper resource allocation can reduce project costs and prevent budget overrun. Well-prepared budgeting plan improves IT project profitability and saves your money (as well as, your time as the most valuable resource).

7 STEPS TO ESTIMATE BUDGET
FOR A PROJECT

Upon learning of the project budgeting benefits, are you ready to start the highway of the budget plan creation? Let's go.
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1
Set project objectives

A well-defined project objectives list is a foundation stone of future budgeting. It's about what you plan to achieve by the end of your project and why does it matter. Matching and analyzing project objectives helps to form a common vision of a future product and a project process and align the goals of every project stage.
    2
    Identify project scope
    Before you can calculate the budget, you have to form a clear picture of the project scope, timeframes, and deliverables.

    A work breakdown structure (WBS) document will be a compass for your star project track. This tool from the IT project management arsenal allows you to capture all work involved throughout the whole software development life cycle, from the discovery phase to the launch. It makes it much easier to assess the resource requirements for budgeting and ensure accurate adherence to each development step in the future.

      3
      Define resources you need
      After you outline the project scope, you can determine the resources required to complete it. Don't forget about such additional expenses as marketing, training, or staffing help. For example, if you a looking for agile tools to complete your project in a short timeline, it's reasonable to look toward outsourcing IT services.
        4
        Estimate amounts
        Here let us go down the list of resources and evaluate costs for them. Determining amounts can be hard and time-consuming. So that is where market research and business analytics come into play. Start with:

        • Investigation of historical budgets for similar projects
        • IT salary market research
        • Consulting with subject-matter experts
          5
          Evaluate the risks and out-of-scope work
          When conducting a risk assessment, unexpected incurred costs should be included in the budget. Brainstorm with your team, assess areas of risks and try to predict budget variances regarding that points. Carefully consider appropriate risk criteria to serve its specific needs and attain desired results.
              6
              Establish a contingency fund
              Remember, that even with a thorough risk evaluation and estimate, unexpected contingencies may require budget revisions. So, keep calm and establish a contingency fund.

              The risk score and clear calculation of the out-of-scope work is a kind of monetary assistance for future uncertainties. Define risk levels and risk treatments. Make effective risk-based decisions and build a reservoir of money kept aside to cover up for unforeseen circumstances. Some companies have compiled risk profiles that are used as a starting point for risk criteria analysis.
                    7
                    Obtain approvals and implement
                    Finally, the last level of the track. Here you will deal with:

                    • Presentation of the project budget to stakeholders or other business units responsible for approving it
                    • Justifying budgeting items and amount
                    • Creation of a 'game plan' for how to get project costs under control
                    • Providing visibility into costs to be able to compensate or request an increased budget with a valid rationale

                          PROJECT BUDGET EXAMPLE

                          Developing a project budget can be a tricky task, especially for startups and brand-new projects.
                          But this is a vital tool to pitch your project to stakeholders and get the funds, explaining how costs contribute to project objectives.

                          You can select similar projects and create your estimate based on analogous project budget plans, but don't forget to adjust it to account for all details and differences.

                          So, are you looking for a project budget example to know how to design a software development project budget template? Okay, here we go.
                          Freshcode Ukraine projects estimation><meta itemprop=
                          We share with you an example of Freshcode's project budget doc with a cost estimation using the WBS. It includes a layout with detailed sections you need for a budgeting plan.
                          You can use it as a basic example of software development estimation for the whole budgeting design. All monetary values in the template are customizable — use them as 'N' variable that is assigned a value regarding your project rates.

                          This simple method is called "analogous estimating" because of the comparison and compilation of projects that are similar to the project that you and your team are undertaking. It presents a number of advantages:

                          • doesn't require a lot of resources or time
                          • can be performed with limited available data
                          • suitable for the project initiation phase
                          • can be used for initial stakeholder communications
                          • can be refined and supplemented with extended data over time
                          For detailed consultation about creating a project budget and how to use estimation templates contact our BA team directly.

                          CAN I SKIP THE PROJECT BUDGETING STEP?

                          Don't under-call the budget, unless you want to end up missing milestones, and keep walking to the finance department to ask for more money.

                          Don't over-call the budget, unless you want to get stuck on the initial stages and never get off the ground.

                          So, how to do project budgeting right and prevent the most common mistakes?
                            Mistakes cost estimation software development ><meta itemprop=
                            1
                            Haste and lack of preparation ➡ Proper and comprehensive research
                            The budget helps you hit targets, and be sure you're on track. To have such a great tool on hand you should design it thoughtfully. Review bottlenecks, prepare revenue forecast, and process budget iterations — every step is crucial, from research to implementation.
                                2
                                Sole decision-maker ➡ Teamwork and cross-review of project requirements
                                To be a lone-wolf decision-maker is not the best strategy to create a good project budget. Discuss with your team their project vision, expectations, doubts, and possible solutions to define a common budget vision. Clearly agreeing on what are you going to deliver and how the product development should be set is the key to success. Prevent all possible situations where mismatches may occur.
                                  The budget helps you hit targets, answer questions, and there's just the satisfaction of knowing you're on track.

                                  Les Carleton, program manager
                                  3
                                  No soft costs and resources for future changes ➡ Budget for unpredictable challenges
                                  Unpredictable costs that were not considered in the budget can become a real issue and provoke critical delays in the project development process. You should transform unexpected expenses into the predicted additional costs using advanced business analytical solutions.

                                      4
                                      Lack of decomposition and prioritization ➡ Well-set management of time and scope
                                      Don't get stuck on the calculation only. Shift your focus from financial precision to strategic success.
                                      Exploit a goal-decomposition technique to prioritize budgeting tasks and project activities.

                                          WRAPPING UP

                                          Project budget is not a straitjacket limiting your possibilities. It's a pillow of safety, a shock absorber, finally, a navigator that gives you an action plan and a clear picture of where your money is spent.

                                          Balancing between being thrifty and stingy is a tricky task. The project budgeting process should be simple and clear but thoughtful and comprehensive.
                                              A budget is telling your money where to go instead of wondering where it went.

                                              Dave Ramsey, finance expert and bestselling author
                                              Can you deliver great outcomes by effectively controlling budgets? Yes, you can. But don't feel you have to track every single penny. A well-set-up budget is an engine on your project track that automatically fuels all processes.

                                              Freshcode specialists consult clients on how to create a clear budgeting plan for different software development projects.

                                              We know for sure that a well-crafted budget plan speeds up the product development process and makes it effective. Our representatives are always ready to discuss this in detail. Please, fill out the form on our website or contact our representative on Linkedin.
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