Modification date: September 10, 2020

Defining Project Estimate

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When businesses are searching for a vendor for their software projects, the number-one question on their minds is often how much the project will cost. But unlike products we purchase off the shelf, custom software solutions don’t come with price tags, exactly. Instead, vendors work with clients to fully understand their vision, their needs, and their budget. Then, they can use that information to define the scope (which includes specific goals, including deliverables, features, functions, and tasks) and provide an estimated cost and timeline for the particular project.

For more insights into how the process works, let’s take a look at the two most common approaches to estimating costs, as well as a few things to keep in mind when comparing vendor quotes.

Two Approaches to A Custom Software Project

Scope-Based Approach

The first is the scope-based or fixed-cost approach, which provides a hard cost for a specific set of features. Once the vendor and client have completed the discovery process, the vendor prepares a document outlining exactly what is to be built, how long it will take to build, and exactly what it will cost the client.

One benefit to this approach is that, as long as the scope does not change, there will be no uncertainty about cost or timeline, so a company with strict budget constraints can plan ahead with relative security.

However, this approach requires the vendor and client to be very precise in outlining the scope of the project. Like a contractor providing a fixed cost for a construction project, a software vendor needs to see a fully finished blueprint in order to understand and convey the final cost. Under the scope-based system, there is no room for flexibility, and any changes or additions will incur additional time and cost.

Another “pro” for the scope-based approach is that any surprise costs are the responsibility of the vendor and not the client. If the vendor estimates any piece of the software scope incorrectly, as long as the discrepancy isn’t due to a change order, the extra cost is on them.

But this added security comes at a price, because when vendors take on a fixed-cost or scope-based project, they build in a risk budget to protect against those unforeseen costs, and there’s no refund if that risk budget turns out to be unnecessary. Just like an insurance premium, clients have to pay whether they end up using it or not. This means that, if everything goes perfectly, the fixed-cost approach will end up costing the client more than the capacity-based approach.

Capacity-Based Approach

The capacity-based approach offers a lot more flexibility than the other. While vendors and clients still work together to outline the goals of the project, the vendor does not provide a guaranteed price or timeline. Instead, the vendor assigns a dedicated team of specialists to the project, and the client pays for the team’s time and any expenses related to the project. Capacity-based projects usually move forward in small increments called “sprints,” wherein the developers complete small segments of the project and then sync with the client to assess progress against goals and discuss any changes that need to be made.

While this approach does not come with a predetermined price, experienced vendors can give clients a fairly accurate idea of what the total bill will look like based on the size of the team and the estimated time required to complete the project. The individual sprints give both parties an opportunity to compare progress to cost and make adjustments to the roadmap as necessary to stay within the client’s budget.

Choosing an Approach

It’s up to each customer to identify the approach that works best for them, but at Syberry we usually recommend the capacity-based system, because it allows clients the most flexibility and control over the project. What’s more, in situations where the blueprints are clearly defined ahead of time, this approach almost always comes out cheaper for the client because it doesn’t include that risk budget, which the client must pay whether there are unexpected setbacks or not.

Whichever route a company chooses to go, we recommend getting quotes from several vendors before choosing a partner. If vendors are using the same hourly rates, the difference in quotes from one to the next should not be more than 15 to 20 percent. If any quote seems ultra high, that should raise an eyebrow for buyers, but the extra-small quotes are the biggest red flag, as they may indicate the vendor has misrepresented the cost to win the contract and will surprise the client with a large invoice later. The last thing anyone wants is to sign on with a vendor that has artificially inflated a fixed-cost budget or underestimated the cost of a capacity-based project upfront only to expand the timeline and the bill once work begins. If the estimate seems too good to be true, it probably is.

Whether you choose the scope- or capacity-based approach, ensuring both parties have a clear understanding of the goals for the software before any work begins is one of the keys to a smooth, efficient process. If you’d like to learn more about ensuring a successful custom software project, read our recent article, “Four Reasons Software Projects Fail (and How to Make Yours a Success).”

Publication date: August 21, 2018

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Syberry has provided satisfactory services thus far, and they are very responsive to any issues that arise. The team also possesses strong communication skills. They delivered a functional piece of software at a reasonable price, and they've managed the project very well.

Richard Harkness

CEO, ADEPT Driver

Elk Grove, CA

How we help ADEPT Driver Company

We developed a web-based driving simulator for teens and another for adults. The products run on Chromebooks, and the team added features that enable them to measure a driver's ability to avoid a crash.

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I don't think you could find a better company to manage and build your project. I get so many compliments on my application, and it has a lot of unique and complex development.

Todd Surber

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Charleston, South Carolina

How we help PIXRIT Company

A photographer approached us to build a web-based software platform that combines the fastest social media manager with state-of-the-art galleries and provides the ultimate tool for photographers to upload, store, back up, and share their photos and manage their SMM activities.

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The user-friendly software hasn’t encountered any issues or bugs in more than three years. It’s high quality has helped grow the clientele. Straightforward and consistent in communication, Syberry met every deadline and ensured a hassle-free development process.

Vince Hughes

Owner, Steel Estimating Solutions

Knoxville, TN

How we help Steel Estimating Solutions Company

Our client was inspired to create a product that helps steel erection companies perform faster, more efficient estimations and bids. We developed original proprietary software from the initial concept.

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The new platform received positive feedback and performs better than its predecessor. Syberry communicated the project’s progress to their partners well by breaking down their steps and utilizing a management system. Most importantly, they delivered world-class service for a cost-efficient price.

Bill Fahy

Owner, FDI Creative Services

Houston, TX

How we help FDI Creative Services Company

Following strict regulations and requirements, we used AWS to develop a custom e-commerce web app that includes shipping integration. Since the site’s launch, the team has continued to make updates.

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The application was delivered on time and within budget. Syberry explained their process thoroughly and accommodated to scope changes effortlessly. Their stellar project management, highly responsive communication, and proactive attitude set them apart.

Ricardo Casas

CEO, Fahrenheit Marketing

Austin, TX

How we help Fahrenheit Marketing Company

We developed a large, complex .NET application with various third-party integrations. The team built the software from scratch based on existing wireframes.

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The end solution exceeded the client’s expectations. Syberry delivered high-quality products on time and at outstanding value. They provided frequent updates and repeatedly sought feedback at each stage. Customers can expect a highly experienced team that easily translates concepts into solutions.

Rudy Milkovic

Executive Director, Velicom

Austin, TX

How we help Velicom Company

Our team built video streaming software as a web and desktop app for a third-party client. We completed end-to-end development—from scoping to feedback cycles to QA—using PHP and Wowza Streaming Engine.

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Syberry has successfully improved the frontend performance of the platform and continues to make thoughtful suggestions for enhancements. They have proven to be communicative and reliable, mitigating the common concerns of outsourced teams. Syberry remains mindful of business goals and client needs.

Cory Kowal

VP of Products, THG Energy Solutions

Tulsa, OK

How we help THG Energy Solutions Company

Taking over for another vendor, we served as the ongoing software engineering partner for an energy company’s cloud-based platform. The company provided scoping, development, testing, and deployment services.

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The added team members sufficiently fulfilled the needs of the project. The product was successfully launched and has received positive feedback. Syberry continues to be a supportive partner in development. They provide an impressive team and their expertise fosters a smooth collaboration.

Chris Cox

CTO, MyMelo

Louisville, Kentucky

How we help MyMelo Company

We provided staff augmentation resources for a development project. The team contributed engineers to follow an established roadmap to perform updates and add features.

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Syberry delivered a solid website that has become a database of close to 40 organizations. The team worked quickly and efficiently to get the website up and running, and they continue to invest their time into the project. Additionally, they have been a communicative partner.

David Snyder

Product Director, Covid Resource Network

West Orange, New Jersey

How we help Covid Resource Network Company

The company developed a website that serves as a database where organizations can find and donate to other organizations. Currently, the team is working on enhancing the website and fixing bugs.

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When the system is up and running, it will save time for the internal team. Syberry was a patient partner, and they performed well throughout the collaboration.

Joyce Cubio

VP of Operations, Ernie's Mobile Home Transport

Yuba, California

How we help Ernie's Mobile Home Transport Company

The team built an information hub for a mobile home transport and permit service. After discussing the existing system and processes, we delivered a new structure for forms and data.

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All deliverables have exceeded expectations and function properly once launched. The Syberry team is skilled in juggling multiple projects, and provide strong expertise in software development. Their dedication to the project has fostered continual success in the engagement.

John Fox

Executive VP, Fox Business Automation Solutions

Lakeland, Florida

How we help Fox Business Automation Solutions Company

Brought on as a third party, we supplied ongoing development services. The team work on multiple projects and deliver according to predetermined design specifications.

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