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Evaluation of application – Why is one offer for 10,000 and the other for 250,000?

Today, we will consider how the same project can be priced at 10,000 and 250,000 EURO. Where do such colossal differences come from? What affects such distant amounts?

Kamil Dziuba
CEO @ GMI Software
04 April 2019 5 MIN OF READING

Again, we approach here a very sensitive and extremely important issue – the evaluation of an IT project. At the beginning of July 2018, we unveiled the 9 most common mistakes committed at this stage of cooperation with the software house agency. We have also developed simple and specific solutions to get out of trouble when setting a budget for our application or other online product.

Today, we will consider how the same project can be priced at 10,000 and 250,000 EURO. Where do such colossal differences come from? What affects such distant amounts?


Understanding the project by a software house

Such divergent evaluations are the everyday life of software companies. Our approach as a client has a significant impact on that. Whether our software house understands what product we want to market depends on three key issues. Let’s learn more about them:

  • Available project materials. A very important point. Software house, which we applied for, worked on a few sentences about the idea for the application, as well as on the project documents written with extraordinary accuracy. In the latter case, our agency operated on studies counting several dozen A4 pages. At this stage, we can generate drastic evaluation differences ourselves. If we are in the first group of clients who only have an initial outline of the project, then very general assumptions will result in an increase in the evaluation. The wording “order module” can serve as a perfect example. Using the ready-made plugin for e-commerce solutions, we can close this point at the level of several hundred zlotys. However, if we create a system dedicated to a company that measures itself with hundreds of thousands of orders a day, then such a module can even cost from a few to a dozen or so million euro!Clarifying the vision and outline of the project would be a way out of this situation. It can also take place during our first conversation with the programming agency. A good software house should guide us. If we properly determine the scope of work, then we will move in real price range.
  • Agency experience in similar projects. If the software house already has applications similar to ours or has already been dealing with projects in our industry, we have a better chance to estimate the costs associated with individual elements of our system. Moreover, equipped with this knowledge, our programmers will be able to protect us against the risk of errors that can boost the cost of the entire project.
  • Identification of the project stage and development prospects. So we are going back to our first conversation with a potential contractor. We may be tempted to present the agency a global vision of our entire business. We are happy to present the strategy for a few years. We will tell you what our application will ultimately contain. Product Backlog, which will create our software house, will grow by dozens of functions that will be completely unnecessary in the first version of the application. Multiplying functions will naturally increase the evaluation of the entire project.If we find a reasonable IT partner, it will effectively persuade us to see a project that will cost us several hundred thousand or even several million euro. The parter will explain to us, however, that thanks to Product Design workshops we can achieve a well-prepared MVP, which will cost us less, and which can then be successively improved with new functions. We will thus save time and money.


Hourly rate of the programming agency

This factor should be included in our business costs. The hourly rate of our IT partner is affected by both the experience and the size of the company. Software house employing hundreds or even thousands of programmers will present us with a much higher quote than a smaller agency, in which a dozen or so specialists are programming, or a freelancer who will prepare a product based on a completely different rate.

How to find the golden mean?

We are already much better prepared to talk about the valuation of the project. When you are at the table with specialists from the programming agency, let’s play open cards. Let’s just say what budget we have and, together with the agency, discuss the possible scope of the project.

Software house should suggest a few days of product workshops. Thanks to them which we will know more about the process of creating our application. Product Design Workshop is a creative and efficiently spent time. It will help us make decisions which will make the application be successful.

How much will we have to pay for such workshops? And will they bind us permanently with the company, even if we are not satisfied with the result? These are two important questions. The cost of the workshop will not be a shock. Usually, it should amount to 10-15% of the project value. What we get in return is not only a clear vision of our product, but also its more accurate valuation. The workshops also do not make us suddenly be welded to the agency. If we do not feel that the cooperation will be smooth and constructive, then we can report to another company and bring it a ready, well-written scope of the project.