Checkpoints for Software Project Budgeting

Formation of the budget for an IT project is one of the keys and not always simple tasks. The effectiveness of the planned budget largely depends on the work of employees and the operation of the entire hardware and software IT infrastructure. Therefore, the primary role is occupied by the issues of competent cost planning, identifying the effective threshold of investments, and relating them to the strategic goals of the business. These and some other issues will be discussed in today’s publication.

According to a study of the Standish Group, the cost of an IT project on average exceeds the budget allocated for it by 43%. Last year, only 29% of IT projects were completed on time and within budget, 53% of projects were not completed on time or did not fit into the budget, and 18% simply failed.

The necessary capital for our first steps as entrepreneurs will depend on various factors: the type of company, the business model to be implemented, the resources to move it forward … Based on these parameters we can begin to define and break down our budget, for which we must consider:

Start-up expenses

When it comes to launching an idea it is necessary to know and analyze the marking in which we will act. You must set the expenses to conduct studies and market research as well as trends in the sector to analyze your closest competitors. Here we will add other expenses such as trips to hire suppliers or to explain your business to future clients, promotion and advertising.

Management and organization expenses

This section includes all those expenses to register the company as a limited company or cooperative, licenses and legal permits that require the opening of a business of that type, as well as other administrative tasks in which you need external help: lawyers, accountants, others.

Human Resources and equipment

Once you have defined your business plan, it is time to know how many people are needed in your team and their respective salaries. Besides the professionals, you will have to carry out an inventory of equipment for your company: from computers to software programs as well as the rent or purchase of the premises and services (telephone, electricity, Internet)

Operating expenses

Operating expenses are all those fixed or variable expenses of the company that you need to cover even if there are no entries of any kind.

Fixed operating expenses are things like the equipment lease, the rental of the premises or the salaries of the employees. You can estimate them constantly every month for a whole year.

Variable operating expenses are those linked to the sales you make: materials for the production of the items to be sold, shipping expenses, sales incentives for customers, taxes collected for sales, etc.

Cash flow

In addition to all expenses and outflows of money, it is important to estimate the percentage of income that we will obtain in a specific period. In this way, it will be necessary to define the possible capital inflows, or what is the same, all the money that a company enters thanks to its activity or through the advantage of assets, subsidies.

From these five points, you will have all the variables that must not be missing in the initial budget of your company. Known the total figure is the time to see if you have the necessary capital to develop it or if we have to resort to external aid.

After you have estimated the project costs, hold a meeting with your business colleagues to make sure that you have taken everything into account and can satisfy their requirements. Most of the projects go beyond the budget because someone suddenly decides that it needs something else that was not originally included in the budget.

Even after you have done all this, it would be nice to include a moderate amount in the budget in case of additional costs. Include a “safety stock” of 10% in the budget so that the finance department would not panic in case of minor problems.

Stay up to date

Although most projects go beyond the budget due to inaccurate initial calculations, some do not fit into it due to lack of control. Many organizations use scheduling software to keep track of the project’s readiness, but they do not keep accurate records of employee time spent on a project and other costs that may cause the project to become unprofitable. Often, IT managers believe that the most important thing is to finish the work on time, so sometimes when they revise a project plan, they can spend more resources to do everything on time.

There are many ways to control the budget: from periodic meetings and a common Excel file to complex software for managing budgets of interdependent projects (for example Artemis and Changepoint). Although someone prefers online budget controls, some didn’t need such software at all. However, regular meetings and reporting on their current status are necessary for the normal management of projects.

Loss of control

For successful project management, two rules should be followed: carefully verify the initial cost estimates and maintain their control at each stage of the project. But what to do if the project exceeded the budget despite careful planning?

According to experts, in this case, the company can act in two ways: to revise the budget, asking for more money, or “cutting corners”, thereby completing the project only partially.

If you made a priority list and contingency plan with business partners during the budgeting process, then you have insurance against cost overruns. The list of priorities highlights the most costly elements of the project, and your contingency plan will help get the project back on track. With a well-planned budget, you can adjust to unexpected circumstances on the fly without asking for more money, you can work confidently and expect predictable results.