Use Value-Based Budgeting to Accurately Budget for Software Development
Budgets for agile software development initiatives can be hard to pin down. When starting a new software project, more is unknown than known, but having an accurate budget is very important for the business. This puts a lot of pressure on the Product Owner to get the budget right. No one wants to have to go back to their stakeholders and ask for more money later on.
At Aptera, we help our clients budget for their software with every new initiative we undertake. Over years of making budgets, we’ve homed in on a system that works for agile software projects. We believe that by using a system of value-based budgeting, you can ascertain an accurate budget upfront and help ensure that you develop scope that aligns to the desired outcomes.
What is Value-Based Budgeting?
Typically, budgets are created based on a set scope of a project and then the development team estimates the amount of time they think that scope will take them. When you budget this way, you start by asking “what” you’ll build. For value-based budgeting, we suggest that you start by asking “why” you are building a new software. What value will it bring to your business to have this new software product? When you ask these questions first, you can determine what the software is worth to you and set the budget and the scope accordingly.
Let’s take a closer look at the steps to follow to set a value-based budget.
Step 1 – Establish Value
To set a budget based on the value of the software, you need to know what value it ought to bring. Start by asking yourself why you want this software in the first place. What is the business hoping to gain with this new technology? This could be something surface level like, you’re hoping to gain bigger market share by being more innovative than your competitors or simply to increase revenue. The reason could also be more nuanced, like a you’re hoping to create a better customer experience or to make your team more efficient and reduce labor costs.
Once you’ve identified your goal, try to convert it into monetary values. Think about how much money will be saved or gained if your software achieves its goal. From there, you can determine how much that success is worth to your company. That will be the starting point for your budget.
Step 2 – Plan Your Scope
After you’ve established a baseline number of what your software is worth, then you’ll want to take a look at the scope of the project for feasibility. Before you begin to scope things out, remember that this is the most flexible part of your budget equation. You don’t need to know everything up front (and you won’t!) so don’t spend too much time gathering extensive requirements.
To get a starting point for your scope, think about what needs to be included for your software to achieve its intended goal. This is a middle ground—it won’t include every feature you could dream up, but it also is more than the bare minimum. You need your software to succeed, so include features it needs for that success.
After you have a basic scope for the application, don’t forget to factor in time and costs beyond just coding. You’ll need to think through anything else required to get your product to market. These considerations could include:
- Delivery platform
- Infrastructure and any related fees
- Pipeline for deployment
- Search Engine Optimization
Finally, don’t forget to include in the scope ways to measure your product’s success. This could include building in ways to collect voluntary user feedback, tracking usage of your system, or monitor performance and uptime.
Step 3 – Estimate the Work
The last step in the process is to take your predicted scope and your value-based budget number to your development team and have them assess the feasibility of those items together. Will that scope actually fit within the budget?
Presenting the development team with a proposed budget and scope in this order will help you get a more accurate estimate. When development teams are presented with a scope alone they often fall into a trap of either giving you a low number to win the project or a high number that they’ve padded to avoid disappointment.
When your development teams gives you their numbers, it’s a good idea to ask how they came up with their estimates, especially if it’s a new working relationship for you. You want number that are based in historical data, have been determined by a consensus of people, and that are presented in ranges. Once you have all the numbers, you might even want to plot it out on a spreadsheet. Map out all the people on the team and the work in weeks or sprints. This is a good way to check if your number might need to go up a bit.
Now you have a budget that is based on the return your software will bring, you’ve set a baseline scope for how to get that return and you’ve checked the feasibility of the project by estimating the time required. This budget will be a powerful tool for your development process. You can use it to help keep your work on track, as a constraint. When the scope threatens to creep, you can use your value-based decision making and budget to choose which features will help achieve your desired return.
Start your next software initiative with a value-based budget. We think you’ll like the result.
If you have questions on how to find the right ROI to base your budget on or how to proceed, let’s start a conversation.
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