How to Manage and Optimize your Software Development Budget?

Organizations can easily be overwhelmed by IT costs and complexity. Most organizations have carefully reviewed and replanned their budgets through cuts, delays, or renegotiations to gain potential savings. Forced to fund strategic initiatives and drive growth, executives look beyond their ledgers for opportunities to shift spending and reduce IT costs. What should you do first?

This is an important decision with severe downstream consequences. The custom software application development portfolio is clearly a priority representing between 30 and 35% of all IT expenditure. But it is essential to know where and when to reduce these expenses. Unfortunately, imprecise application optimization approaches can create more problems than they solve.

It’s increasingly more work to manage a company’s IT expenses. Research shows that 54% of decision-makers consider optimizing IT costs to be the biggest challenge in managing an IT fleet. Unfortunately, controlling this budget has become a more significant challenge than moving to the Cloud or innovating.

Many organizations need to gain control of their budgets following excessively rapid development and sometimes uncontrolled deployment, particularly on applications following SaaS (Software as a Service) models.

Lack of time and knowledge on IT optimization, license management, relations with publishers, etc. Many indicators show that most companies face these issues, such as the high turnover of IT consultants or the lack of workforce.

Five Steps to Manage and Optimize your Software Development Budget

Reducing IT costs involves identifying and eliminating sources of waste, underutilization, or low business value in the IT budget. Also known as IT cost optimization, this practice yields savings that can reduce the budget size or be reinvested in new technology to drive business growth.

Some IT cost reduction opportunities provide quick wins because they are pronounced and easy to implement. Other options are more challenging to identify and implement. These five methods of reducing IT costs are generally ranked from simplest to most complex: applying the financial management principles of IT resources in the sequence is more accessible than using market levers to influence demand.

1 – Audit your expenses and projects

Except in the case of business creation, you normally have an initial cost estimate owing to the expenses already incurred in previous years. This represents a first base that will allow you to better plan the budget for the following year.

Analyze your costs and see how the money was spent over the year before setting a budget for the coming year. This audit will also allow you to highlight off-budget items and thus predict potential new overruns. This can lead to lower costs.

2 – Define your strategic and software development objectives

The software development budget is critical to business strategy; it must therefore meet the strategic objectives established between general management and the IT department. The latter is essential, especially for companies in the midst of digital transformation. It can concern major projects in the company such as:

  • the move to the cloud,
  • the implementation of mobility solutions for employees,
  • digitization of processes, etc.

The setting of your software development objectives will also depend on the degree of technological advancement of your company: if you have already made good progress in terms of digital transformation, or if you have not yet taken the plunge.

 Thus, define your Software Development objectives by reconciling the vision of the business manager as well as the overall strategy of the organization. Prioritize the projects and therefore the most urgent objectives by focusing on the expected return on investment.

3 – Establish the operating budget

The operating budget constitutes all the expenses necessary to undertake and maintain the software development cycle in working order. It is therefore essential since it must guarantee Software Development teams financial autonomy while allowing them to cover the administrative expenses of their project(s).

Many CTOs report that operating expenses weigh between 50 and sometimes up to 80% of the budget managed by their management, whether it is hardware, software, telecom subscriptions, maintenance renewal, etc.

Remember: build your operating budget as an extension of the previous year’s budget, while updating inventories, resources, and expected developments.

4 – Create room for manoeuver

Now that you have established your operating budget, estimate the total cost of the resources you will need to allocate:

  • Based on your estimates, establish and assess activities, costs, impacts, and risks;
  • Define and prioritize resources;
  • Determine a specific budget approach.

Consider integrating current and/or growing Software Development projects, already launched and which have an impact on the upcoming budget.

5 – Define ROI calculation indicators

In order to give more weight to your Software Development budget mapping, it is important to propose indicators for calculating the ROI (return on investment).

In order to support your budget, consider taking stock of the previous year, accompanied by quantitative and qualitative data. Also, remember to keep your budget lines under control.

Example: last year you invested in new IT tools, Agile teams, and DevOps resources, did this save your team’s time? If yes, how much? If not, why?

Bonus: Three tips to optimize your Software Development budget

Communicate continuously with business departments

It is important to communicate upstream and continuously about the project in order to help the teams to project themselves and to avoid a bad adaptation or a lack of information that can hinder the success of the projects. For this, we recommend that you:

  • Detail the strategy of the Software development roadmap,
  • Indicate the expected level of expenditure before the final forecast,
  • Present the selected projects,
  • Inform the teams of relevant developments during the process, etc.

Get the right software

Equipping yourself with software adapted to project management and budget forecasting can be a big plus for your Software Development project. This type of ultra-efficient tool supports you in managing 3 essential aspects for the proper functioning of your project and your business:

  1. Activity management: you will be able to manage your activities more easily owing to a detailed plan listing the attributes and assignments to each project. You know how much time has been spent on each user and on each project.
  2. Cost management: it allows you to strengthen your organization and your budget construction owing to complete and transparent visibility of the necessary expenses. You have better visibility of possible constraints and on potential additional costs.
  3. Performance analysis: this type of tool gives you the benefit of intuitive dashboards and reporting accompanied by key indicators that update automatically. You have a complete follow-up to analyze the feasibility of the projects.

Thus, equipping yourself with software specially designed for project management and budget construction is a real advantage for your company, even more so when it is dedicated to the specific problems you encounter as a CTO.

Set up budget monitoring

We can never repeat it enough: monitoring a project, whatever its purpose, is essential. Follow the progress of your project and its budget estimation over time. To do what? A lot of reasons, to which here is an overview:

  • Ensure the smooth running of the project and the accuracy of the planned budget,
  • To implement corrective actions if necessary,
  • Correctly keep the teams and the general management informed,
  • To increase the budget if it turns out to be insufficient (and to be able to prepare for it in order to allocate the necessary resources in time), etc.

To do this, you can set up measurement indicators (KPIs) and set up a monthly reporting system.

Revise your initial estimates

Finally, you’ll want to go back to these reports and make sure they’re on schedule for your project. If they don’t fit your schedule, you need to review your expenses and check that you’ve included everything and forgotten nothing.

This brings us to our final step: review. You may need to revisit the Software development cost estimates you made earlier. Do not insist on keeping them if the project imposes something else on you. By reviewing in real-time, you ensure that the budget is not just numbers on a spreadsheet, but an accurate forecast of expenses for the project.

Considering that you can track your budget using real-time dashboards, capture recurring expenses, and report on every aspect of the project, it’s clear that the software has what you need to create and manage project expenses.

Our tip

We hope this blog helps you understand the software development cost estimates and the various factors that can affect it. Now, a dedicated mobile app development company can help you put things into perspective and offer to help you decide the functionality and features required in the software as per your business requirements.

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About the Author: John Carter

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