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Managing Software Development Cost: A Comprehensive 7-Step Strategy to Prevent Overruns

Updated: Jan 11

The common belief is that software development cost overages are an unfortunate but inevitable nuisance. Managers often optimistically assume that the business outcomes will justify the IT expense.

Curious about how to deal with project cost overruns? Read on to get a comprehensive action plan and manage the information technology budget attentively. 

Can Exceeding Budget Destroy Projects? Hair-Raising Project Cost Overrun Case Study

Going Over Budget: Great Western Rail Line Modernization

In the race for sustainability UK Network Rail faced a project over budget of £1,9 bln.

The company strove to migrate from legacy infrastructure to a new one. A power distribution system became a stumbling block. Network Rail has to construct 4,200 overhead gantries and 49 power distribution facilities along the Great Western Rail Line.

In 2013, Mark Carne, the former CEO of Network Rail, called a weak software development project plan, outdated knowledge of railways, and superficial software development budget estimation as core reasons for budget overrun.

The former CEO of Network Rail

As of 2020, the UK boasted of completing a scaled-back Great Western Electrification project. It took 10 years and billions of pounds.

Baggage Management System in Denver Airport and Project Cost Overrun

Creators had an ambitious plan to create the first automated system to handle baggage through 3 concourses of Denver Airport. But they underestimated the complexity of thistask.

Consequently, engineers built a system serving only one Airport concourse and stopped the transport hub for 1.4 years. The downtime added $560 mln to the entire cost of software development.

The case was the product required over $1mln/month for maintenance. The system has never worked well, and in 2005, United Airlines scrapped it in favor of a manual management system.

Top 7 Tips to Prevent Software Development Project Over Budget

#1 Pay more attention to the discovery stage

Customer companies prefer to ask for quick scanning to the intended research. But deep analysis always leads to better development results, and of course, helps enterprises to save information technology cost. Give the vendor a few weeks to learn your corporate business processes and reveal invisible weaknesses. It will help to avoid surprises in the future.

#2 Shadow your domain development

It's not enough to know the business conditions like the back of your hand. Anytime you can face a challenge like a demand change, new technology launching, etc. If these circumstances can affect your industry, they'll affect your company and project. And you won't like the new expenses they bring. So stay one step ahead of others and analyze predictions by reputable sources. Forewarned is forearmed.

#3 Build healthy communication with your partner

Delegation of software development is a question of trust. You should choose an experienced vendor and be sure in its business transparency to move forward together. Leave the room for a reasonable budget discussion.

#4 Create an accurate roadmap

Some companies failed their projects because of poor planning. We used to think that one new product may solve all business issues. We expect it will match the existing IT ecosystem from the very beginning. It's not true since new software should be grounded on the updated processes.

Planning is not just about "my contact center as is" and "my contact center to be". It's about "my IT ecosystem "as is" and "my IT ecosystem "to be". When creating a roadmap, you should consider all the supporting processes as the coreones. They are also an object of charging.

#5 Set a reserve budget to cover risks

Your team and partners can do everything flawlessly: dig deeper into processes, consider forecasts and develop the best action plan in the world. But unfortunately, you can't predict force majeure. Make a project cost breakdown structure with potential risks in mind to set up a reserve budget just for any case.

#6 Create a full-fledged MVP

Build a robust prototype and test it using all possible scenarios. It will help you discover bottlenecks and eliminate them before they become high-cost trouble.

#7 Use KPIs

Every result is a poor result when you can't measure it. To control budget, you should use several key performance indicators, like:

  • Actual project cost

  • Cost variance

  • Earned value

  • Planned value

  • Return on investment

The Bottom Line

No one is immune to cost overruns. Often, they arise regardless of the vendor's reliability or the client's requests. Custom software development is typically a long-term endeavor, and budgeting issues can stem from inadequate planning or unforeseen internal/external factors. However, it is possible to anticipate these challenges and prevent budget overruns.

Have you faced budget issues in the past and are wary of encountering them again? Achieving sensible project budgeting could be just a few clicks away. Contact us to discover JEVERA expertise and learn how our specialists can assist you.


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