How to Create a Cost Estimate For a Software Project


Calculating the overall expenses of software development isn’t a piece of cake, especially if you possess little or no knowledge about cost estimation.

Assessment of cost is undeniably the hardest part of any project deployment. A successful project always requires adequate cost estimation. When we talk about the software development cost estimation, a proper approximation of cost forecasts resource allocation, associated costs, and approved timeline.

Diverse software projects require different web development approach, number of resources, and overall spending, which is perhaps the reason one shouldn’t just rely on pre-defined assessment techniques. Numerous aspects require consideration while calculating the software project cost estimation and associated services.

For the clients, every buck counts, and you have to admit the fact that you have to justify each dollar that they are going to spend! Dive in here to know how to estimate a software project cost estimations that explain your development and resource expenses.

The Components of Estimating Costs

The overall cost of the project could be easily categorized in many ways and could be effortlessly grouped into different levels. Here are the categories on which you can divide the costs:

Direct Costs: These are the costs that are associated with the deployment of resources, wages of the employees, products used in the development, and so on. These expenses are directly associated with a specified area, which can’t be negotiated. Moreover, the money spent on any resource, physical good, and outsourcing some phase of development/designing could be categorized under direct costs.

Indirect Costs: The cost that simply cannot be linked to a single area and may vary from time to time during the development of the project comes under this category. These costs may be linked to management, security, and utilities. Most of the times the indirect costs are due to some alterations by the client during the development or testing phase of the software.

Before you just start with best software development cost estimations, it is crucial for you to keep these aspects in mind.

Know the Expectations of the Client

What if you didn’t get what your client wants to depict and you end up with a product, which is good for nothing? Sounds nasty, isn’t it? At any stage of development, the client would surely know that you aren’t on the right track if you ignore the importance of knowing the actual expectation.

Know the Expectations of the Client

The first step in creating an estimate is undoubtedly to know what exactly your client’s needs are. There is no point you can start working on the estimation part of the project when you are totally unaware of the final product.

In most of the cases, you would surely get a detailed document regarding the client expectations and what they would be expecting from your end. If this doesn’t happen in your case, it is necessarily important for you to communicate with the managers or coordinate with the team of the client handling the product designing.

Sometimes the developer’s team may be hesitant or even afraid to ask the client regarding their needs, which could be the worst thing in the long run. Remember, it’s always better to ask 10 times rather making mistake and deliver inadequate services. There is nothing wrong in asking your client if the requirement isn’t clear. You won’t sound incompetent if you are looking to clear things in the beginning rather making a blunder in the end!

Sometimes a little ignorance could result in a massive blooper, which your client won’t be paying for. Adequate communication is perhaps the essential thing that must be the base of your product development cost estimation and shouldn’t be ignored at any instance.

Apart from this, there could be a chance that your client isn’t sure what they actually want! Yes, you have to analyze what outcome they are expecting and based on that, you can start allocating resources and decide the number of days for the product design.

Emphasize the Client’s Budget

There are rare chances that you would be aware of the overall budget of your client. Sometimes there’s only a rough idea how much she would be investing in the project but you have to figure out her budget.

Don’t get surprised if your client doesn’t wish to share their budget details or presents a strange budget, which according to the requirement isn’t sufficient. There could be ample reasons why your client isn’t sharing their budget but that doesn’t mean you should stop making efforts in knowing the same.


The most common reason here could be the fear that most of the companies would surely ask for extra bucks when they are aware of their overall budget. As per a survey, more than 35% of the clients don’t share their budget at all!

One needs to continuously make efforts to get at least an idea about the client’s budget, which lends a hand in creating the cost estimation. You should be aware of the fact that the more the budget of the client, the better you can deliver a product.

There are instances that you may not be able to deliver certain functionalities in the end product just because of the insufficient budget. But you have to provide adequate estimation in advance and convey the client about the same before beginning the project.

Once you are about the budget and the feature that should be the part of the end product, you can start splitting the same according to different expenses. The same should be shared with the client for ensuring that they are aware of every aspect of their precious investment.

Make an Out of Scope Section

Just in case you are not aware of the overall budget of the client, you can use your knowledge regarding the use of resources, employees, and other elements. Apart from this, make sure you add a section with reserved expenses so that whenever there are alterations made by the client, you need not worry about the expenses and resource utilization.

Furthermore, while you are calculating the estimates of the project, it is important to examine the detailed information offered by the client. This would help in avoiding the development of the features that aren’t required in the final product. Moreover, it would aid in developing a client-friendly estimation where your client would be surely convinced and would know the expenses are justified.

Checklist to Follow for a Great Cost Estimate

The reliability of your cost estimate undeniably depends on several factors that characterize your cost estimation for software.


Here is the list of characteristics that depict the consistency and scalability of your estimate:


There could be some uncertainty regarding the overall costs of the project at any instance, which shouldn’t be in the case of a perfect estimation. One should be sure enough about the utilization of their skills and their potential in delivering the right services in the assigned time and budget. Your confidence level plays a crucial role in developing accurate cost estimates that leaves an impression on your client along with the assurance of trustworthiness.


As discussed earlier, if your client doesn’t find your estimation up to the mark, you definitely would face certain glitches in building trust. There are chances that the sponsors or investors would like to know about the use of budget in the most practical form.


This could be quite challenging if you aren’t prepared to depict the use of precious money invested by sponsors in the most appealing way. Make sure you add work costs and labor charges in your final estimated document so that you could easily convince the client as well as the investors that are investing their hard-earned money on a product.


You need to be sure enough that your entire estimation is documented adequately. With documentation, we are addressing the essentials that need to be provided in writing to the client before beginning the project. These documentations should contain information about the various elements that contribute to justifying the use of the budget offered by the client.


For instance, adequate information about the total number of employees that are deployed on a single module should be mentioned along with the salary details or hourly payment details in writing. These kinds of documents further help you out in clarifying the costs of the development just in case the client seems unsatisfied.


You simply cannot deal with a situation where your estimated costs and actual costs fluctuate! This could happen due to a number of reasons. The major reason for this situation is the fact that you haven’t researched regarding the investment of time and labor in developing particular software. Moreover, the use of cost estimation software could a fruitful way to get some help in making an estimate of software by uploading the requirements. Most of the experienced professionals recommend the use of these dedicated tools that are intended to help beginners in estimating the costs of the products based on their functionalities.

Risk Analysis

It is important for you to consider the fact that in any instance, the project could be influenced by some risks. One should analyze the risks associated with the development of the product, which could affect your earnings from the project.


It is thus recommended that you should analyze the risks and overestimate the project so that you need not face any loss while the product is delivered. There are people who ignore the importance of overestimating and they eventually underestimate the product. This could be a risky situation that can affect your profits in the long run.

Cost Verification

Cost verification is again an important part of cost estimation, which shouldn’t be ignored at any instance. The mathematical operations used to derive the cost should be evenly applied and the resultant outstanding cost should be precisely calculated. Sometimes a little glitch in the calculations could result in a huge blunder while you are about to bill the final amount.

You should be aware of the fact that the client won’t be responsible for the issues with the calculation mistakes and the variation in the final amount to be paid. Hence, it is crucial for you to recheck the calculations and ensure that there is no chance of omission.


The above-mentioned aspects associated with cost estimation should be strictly followed especially if it is the first time you are preparing a cost estimation of a project. You can get adequate help from these factors that are created after adequately researching the internet.

About Author

Ganesh Verma is an avid IT enthusiast with around 19 years of experience. Currently associated with Seasia Infotech, a CMMI level 5 organization he has demonstrated his techno managerial capabilities in orchestrating strategic goals and objectives of the organization and guidance to the project teams to deliver the same. He has been instrumental in building credibility, establishing rapport, and communication with stakeholders at multiple levels to maintain profitable business relationships with existing customers.

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