Cost factors of outsourced software development projects: part I


How much does outsourced software development project cost? Well, it depends. Simply put, project costs depend on two main factor groups:

No matter what pricing model (fixed-price, time and material, or even a dedicated development team) you opt for your outsourced software development project, these factors always work and determine your expenses.

In this post, we analyze project scope as the first cost factor group, and the only one you can affect. In the next post, we will touch labor rates and explain their costing and why they differ from vendor to vendor.

So, let’s start!

When deciding to apply for software development outsourcing services, you already estimate your approximate project budget. In other words, you assess the rough scope of work for your project. This assessment gives you’re the answer about how much effort it takes to complete the project. Here, you consider two main aspects, project size and complexity. Besides, if you choose a fixed-price model, the vendor’s risks can be another factor that affects vendor’s estimation and, thus, your project costs.

Project size

Project size stands for the number of features your outsourced software development project has. Perhaps, this is the easiest factor to understand and assess as here you can literally count these numbers.

Here, a software feature is an option or functionality software avails for the user to help him solve his particular challenge. For example, a CRM system may have the following options and functionalities:

As you can understand, the more feature-rich a product is, the more time it takes to develop. In this context you can remember the old proverb “time is money”. Thus, it becomes evident that the more feature-rich a product is, the higher the project costs. However, this correlation is not linear as it strongly complemented with another factor, project complexity.

Project complexity

Project complexity stands for how many effort it takes to build each feature or functional capability and how high should be the skill level of outsourcing developers to accomplish this task. To clarify, one feature may take only a few man-hours to build, while developing another one, engineers need to spend a few dozen man-hours. Moreover, one feature may be common and easy to build, while another one requires deep expertise to architect and high-leveled skills to implement.

Here are the main sub-factors that determine project complexity:

As you can understand, the higher project complexity is, the higher development costs are.

Vendor’s risks

Here, the vendor’s risks stand for the probability of emerging new difficulties and challenges during software development within the defined tasks. For example, 7-layers architecture logic is hard to implement in practice though it can be perfect on the paper. In other words, a vendor may consider a pessimistic scenario when estimating the project scope and providing a quotation for a fixed-price contract.

Typically, the larger project and the higher its complexity are, the higher vendor’s risks are. Sometimes, these vendor’s risks may be up to 30% of the preliminary project scope assessment.

However, to tell the truth, not every company, which provides software outsourcing services, shifts these risks on to the customer’s shoulders. At least, this is not the way we go at Softenq. But be aware of this factor when you are dealing with other vendors.

To sum up, project size and complexity are two software development project cost factors that implement each other. And your choice here is either to be ready to spend a large budget to complete the project in full or compromise on certain features, functionalities, or quality attributes. The third factor lies not on your side but on a company you entrust with software projects outsourcing. Your only option here is to negotiate the project scope so as to assure you take over the minimum vendor’s risks and do not overpay for the project for nothing.

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