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How to estimate software development cost and charges?

Extimate Cost Charges

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#1
ryantechnerd

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Me and my friend set up a software company recently,
and my first project is to develop a software for my friend's company,
the project was estimated to be completed in 1 month,
but I took 3 months to complete the project.
After reviewed my project development progress,
I realize that root cause is due to I didn't analyze the project in detail,
so I only estimate total man hour required base on
project main features instead of detail functions.

Few days ago, he gave me another project, and this time I wanted to
analyze the project in detail before I start to estimate total man hour required,
but when I look at the requirement specification, I think it will take me
2 to 3 weeks just to analyze the project. I can charge the analysis fee
because my friend is the shareholder.

If I get a project from a customer, and if the project may take
me 2 to 3 weeks to analyze the project in detail, how can I charge my
customer for the detail analysis?

In current software development market, software company can not start project
before customer agree on the estimated man hour. If I do not take 3 weeks to
analyze a project in detail, I may end up with losing money due to under
estimate the project. If I take 3 weeks to analyze a project in detail,
but the customer think the project is too expensive,
and do not want to proceed, my time will be wasted.


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#2
Spike

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Hey there rtantechnerd,

 

I have formulated a reply as a whole according to your post... Although I will also briefly comment on each paragraph:

 

I am not certain of what software development process you are using, but make certain you select an appropriate process according to the type and scale of the project. It is hard to make out from your description exactly the type and scale of the project you are working with, being 2 of you in the company I would assume you are a software development company that caters for small to meduim sized companies. You mentioned taking 3 weeks to do analysis (Which is reasonable even for a small project with intrict functionality) Although from the sounds of it you are way over shooting how long it should take for a prelimanary anaylsis.
 
Make sure that the initial analysis is brief and high level. Your client will provide you with their requirements. Come up with the tasks and funcionality you think you will need to meet these requirements. You can even go as far as breaking up complicated tasks into sub-tasks and assigning time to each of those tasks to get a rough idea of how long the project will take you to complete... Estimating these accurately all comes down to your experience. In your example above where you estimated for 1 month and it took you 3 is a very big overshoot and as you mentioned came down to the problem of not analyzing the project correctly.
 
A detailed project anaylsis (and first stage of design) can be considered phase 2, after the initial analysis and quote to client (The initial quote should also contain phase 2's detailed analysis charge and hours). And only once the client accepts phase 2 (Which is a more certain amount of hours the project will take) should development start. But during all this you are charging the client accordingly. The initial anaylsis (Phase 1) should be roughly accurate and match phase 2's estimates and if they don't then you should consider possibly getting in a consultant for the initial startup of your company to help estimate these times and costs.(As doing these estimates reasonably accuratly come down to experience with the types of projects you will be working with). 
 
If in your initial anaylsis (Before you spend the 3 weeks) you suspected the it would take you 3 weeks to analyze the project in detail (Being a large scale or intrict project) the the initial quote should include this. Then the client can choose to either accept it or decline it. That's why without wasting both you and your clients time the initial analysis should be solid and you should have confidence that it's correct (You shouldn't have to do an in-detail analysis to get a rough estimate, if so you need to consider someone else assisting you with this process)

 

Me and my friend set up a software company recently,
and my first project is to develop a software for my friend's company,
the project was estimated to be completed in 1 month,
but I took 3 months to complete the project.
After reviewed my project development progress,
I realize that root cause is due to I didn't analyze the project in detail,
so I only estimate total man hour required base on
project main features instead of detail functions.

Congratulations on your new company  :D .... Your estimation of it taking 1 month and ended up taking 3 months is definitely a sign that the initial analysis was problem (as you have already identified.) Although remember that the initial and detailed analysis should be kept separate, formulating these accurately takes experience (As mentioned in my summary above). Just to clarify since I may come across as being quite critical; there are so many projects out there that have been analysed and designed to a T and involved a number of highly experience people and even those projects failed or overshot original estimates. Sometimes things happen and many aspects can be overlooked, it's a learning curve at the end of the day and the most important thing is that we learn from the experience.

 

Few days ago, he gave me another project, and this time I wanted to
analyze the project in detail before I start to estimate total man hour required,
but when I look at the requirement specification, I think it will take me
2 to 3 weeks just to analyze the project. I can charge the analysis fee
because my friend is the shareholder.

 

It's reasonable to suggest it will take you 2 to 3 weeks to do a detailed analysis. Although I highly recommend that you re-look at the very method you are using for estimating "those" times. In other words consider exactly why you suggest 2 to 3 weeks? Ask yourself this question, why is it between 2 and 3 weeks, why is it not 2 weeks on the dot? How did you come to these values? I understand that was a "very rough" estimate, but that could possibly be the problem. You are either trying to formulate a too-in-detail analysis or an over "rough" estimate, you need to find the balance between the two. Highly recommended to you review your method of estimation.

 

If I get a project from a customer, and if the project may take
me 2 to 3 weeks to analyze the project in detail, how can I charge my
customer for the detail analysis?

The exact same way you would charge the client for development. Analysis forms part of the design process and should be charged for accordingly. I'm not certain how you charge clients but this is something that should be reviewed in the core of your business. From the sounds of it you and your friend are doing everything (From design, development, accounts ,etc) since your company is a startup. From an internal perspective you should assign each job function a certain rate; imagine it wasn't only you and your friend and you had many other employees. What will be the rate for the project manager? The rate for the graphic designer? The rate for the developers? and the rate for the testers?, etc...... This will all be compiled into one big charge you eventually give to your client, but from your perspective that's how you should go about charging.

 

In current software development market, software company can not start project
before customer agree on the estimated man hour. If I do not take 3 weeks to
analyze a project in detail, I may end up with losing money due to under
estimate the project. If I take 3 weeks to analyze a project in detail,
but the customer think the project is too expensive,
and do not want to proceed, my time will be wasted.

 

There are definitely companies that start design and development before the customer actually agrees to it. I personally reckon this is very bad practice and would highly suggest you do not follow these bad practices! Don't waste your time until you know its official and on paper... Yes, you could loose money if you under estimate project timelines and this is why it's just as important as the development of the product. As for having to take 3 weeks for the detailed analysis, if you believe it is absolutely necessary and a requirement for the final product being released, then there's no avoiding it. The client can then choose to decline it (That's why an initial quote needs to be precise and accurate, before you start any actual work which costs you money/time). If your analysis of the project is accurate and your rate is fair and the client declines it then it is unlikely that they will find another development company that can do it and will never get their project done. If they do find another company that says they can do it in a shorted time (Assuming they have the same sized team and resources as you) then they'll most likely be lying or your analysis is incorrect, which in that case you need to review core business processes again. But personally I believe if you have set out a fair charge for the client and they don't agree with it, then it's their loss and you should move on and not waste time that could be spent on another client. I guess that's easy to say as I don't know your position in the market, you will have to weigh it out on your own merit. Being a start-up company you may have to make a sacrifice or two to build up some reputation even if that means making bare profits, but don't undersell the company or yourself. So having said that if it going to take you 3 weeks and you're charging at a high rate, and they are currently your only potential client then you'll have no choice but to drop your rate and make it "sweet" enough for them to take until you build up the company to the point that the clients are pouring in.

 

I hope that help... Please don't hesitate to ask anything else.

 

Peace Out :cool:


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#3
ident

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I have not read above but if you can't get a rough idea instantly then the project is not for you. You can't charge for your own learning of the project. By accepting you are claiming you can do it. Imagine if i ordered a birthday cake for £25 and was charged an extra £250 because they needed to do a weeks course on cake making.


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#4
azarl

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I have not read above but if you can't get a rough idea instantly then the project is not for you. You can't charge for your own learning of the project. By accepting you are claiming you can do it. Imagine if i ordered a birthday cake for £25 and was charged an extra £250 because they needed to do a weeks course on cake making.

 

Not necessarily true - I would agree for a small project but larger projects often require a chargeable spec. It's nothing to do with learning to "decorate the cake" it's all about discussing what sort of cake your customer wants.

 

On a very large project I would give a very rough (non-binding) budgetary estimate of the development cost (spend a day to a week with the client and get a feel for what he wants, estimate the time, double it and multiply by your hourly rate). The first part of the project would then be to quantify the actual time and cost and non-refundable.

 

That's how I've done it when I've managed very large projects.


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#5
ident

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A 2/3 week application is not a large project. We have to provide daily prices for large jobs as a carpenter. As high as 3 million. We do not charge for price. For my dads company i recently priced a 12wk job at 500k. It's a free quote. All us carpenters provide free quotes. How ever i would not take a job on if i did not fully understand it before hand.


Edited by ident, 13 September 2014 - 01:18 PM.

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#6
azarl

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If you read the post it is not a 2-3 week job. He estimates that it will take 2-3 weeks to analyse the project. With great respect cutting code is nothing like cutting wood and it is not unusual to to present a budgetary figure and then follow up with a chargeable specification if accepted. If you don't nail down the spec you can be in a world of pain, a clients view of a 'piece of software to count widgets' will vary wildly from a programmer's


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#7
bekss

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Of course, the estimate should be provided by a software development company.
But here you could check estimated hours and prices for software development - average cost of software development


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