Software development project cost estimation is crucial for ensuring a successful, on- or under-budget software development project.

In this article, we provide an overview of common mistakes that can derail the cost estimation process.

Why Software Development Project Cost Estimation Is Crucial

Before checking on the cost estimation mistake, it is equally important to understand its meaning and what value it owes to the entire software development lifecycle (SDLC). Cost estimation is the process of calculating the overall project cost within the specified timeframe and project scope.

  • A detailed estimation process helps de-risk development by identifying outlier cost drivers during the planning phase. Back-of-the-envelope comparisons to past projects risk missing new and unique project requirements that may lead to cost overruns.
  • Tying a development effort to a concrete, deliverable-driven cost estimate helps fight scope creep and keep workflows aligned with available resources.
  • Estimation is inherently full of uncertainty. But by identifying “known unknowns” during the estimation process, budgets can be planned with the flexibility to support different future development scenarios.

1. No Cross-review of Task Requirements

Cross-review of key project requirements is a good starting point for developing time and cost estimates.

A team that takes care of, say mobile app development, usually consists of developers working with different platforms.

This means that the quality of their cooperation is one of the critical factors in your project’s success. If the backend developer has no idea what the iOS developer needs or vice versa, it can easily lead to an unpleasant situation.

For example, consider a situation where the backend developer did their work. Still, it suddenly turns out that the iOS developer needs something else to do their part of the job. Due to a lack of information and communication, we have received false estimations. As a result, the task needs to go on a new “To Do — In Progress — Done” cycle, and precious time is lost.

To avoid such mistakes, ensuring all team members are on the same page is crucial. So, at the start of the project, have them cross-review the technical requirements.

2. The Absence of Research

A key to developing better project cost estimates is formalizing evaluation and research time.

It’s no secret that estimating can be pretty challenging, especially if the task is entirely new to its assignees and they have never done it before.

In this case, a project manager or Scrum Master usually has two options: Request the estimation immediately — which will undoubtedly be based on a pure guess — or set a timebox for investigation.

Doing the proper research will reduce the risk of false estimates and may even affect your understanding of whether you should do the project. For example, it may turn out that it is better to update the project’s priorities by the task’s value from the business’ point of view relative to the resources (i.e., the time and effort required from the team) needed to complete the task.

3. Failing to Prioritize Tasks

Robust prioritization keeps workflows tied to ultimate business value.

Product development is always about managing time and scope. If you do not assign priorities after the task is decomposed, the team — which is, in this case, doing tasks one by one — may waste time on something less important that could be done later instead of focusing on the most significant tasks.

Also, if the task scope is ambiguous and you have a limited time frame before release, priorities play the role of a helping hand when you have to decide what can be kept for later.

The prioritizing mentioned above goes hand in hand with the need to decompose large stories into smaller ones. This video breaks down these concepts and explains how to make it happen:

4. Failing to Decompose Features and Stories

Decomposition helps ensure estimation results in an actionable development plan.

Decomposing — the process of subdividing tasks into smaller, more manageable components — often seems like something that may slow you down on your way to providing the needed estimations.

But decomposing is essential for precisely specifying requirements, breaking down tasks, and clarifying risks. And a detailed decomposition effort will leave developers with a clear roadmap for eventual development.

5. Don’t Know How to Leverage Outsourcing

The software development cost varies with resource allocation methods such as onshore, nearshore, or offshore. Outsourcing software development usually goes near or offshore and can cut costs.

At the same time, an in-house software development team has its own perks, such as better control and proprietary security, depending on the nature and scope of the work. Outsourcing is a great option if you can find a near or offshore expert developer who can deliver a quality product in the decided timeframe.

6. Mistaking Estimates as Final Values

False certainty won’t help generate a cost estimate tied to operational reality.

Estimations are always provided based on assumptions — yours or your colleagues’ — and treating them as final, super-reliable values may not lead to the best results.

After all, it is well known that project management is a realm of high uncertainty (as evidenced by the classic software “Cone of Uncertainty” problem, which describes how the amount of uncertainty changes throughout a project). Accordingly, this is a consideration that you should always keep in mind, staying ready to adapt as needed.

7. Without Sufficient Testing and QA

Testing is key. You can’t launch an untested product. The sooner the bug is detected and corrected; the less likely one wrong decision will affect the next one. This will lead to the prevention of additional cost-generating.

A QA tester is a necessity, not an option, in professional software production. The investment will save you money, time, energy, brand and reputation.


Software development project cost estimation is a complex but necessary process. Try your best to avoid the mistakes mentioned above. Instead, conduct a project discovery phase, analyze risks, get a detailed and accurate estimate, do all the due diligence, win the market, and bring you revenue.

Knowing how to estimate the cost of software development means being able to consider all possible risks and keep a backup plan for every worst-case scenario. Be a real entrepreneur or business professional rather than a gambler. Be adaptive and flexible in your decisions.