How to Budget for Software in an Agile Environment

In Agile project management, accurately estimating the cost, delivery time, and potential benefits of a software project can be difficult. This data is then used by financiers to inform their decisions on the original outlay and ongoing maintenance of a project. To help address this issue, this article will focus on the process of estimating software costs, exploring the various approaches that can be taken. To begin, we will look into the different facets of Agile project management, and the various strategies that can be adopted.

Why do we need agile project management?

Agile project management is a collaborative method for managing the activities of a project. It involves breaking down large tasks into smaller, more manageable components and continuously incorporating the feedback from the team members who are responsible for carrying out the project. This approach is implemented by dividing the project into multiple shorter phases, commonly referred to as “sprints”. This allows teams to quickly adapt to any changes in requirements or priorities and provides greater transparency during the project’s development.

In the software industry, agile project management is a popular approach for iterative development cycles. Through agile project management, software development projects undergo a review of their features and status at the end of each iteration. This review process helps to identify what tasks should be undertaken next and ensures that the project remains on track and is completed according to the set timeline.

Consequently, addressing the issues raised during agile project management is essential in order to preserve the quality of the project and to gain cost-efficiency. Utilising contemporary tools and procedures, such as those used in CI/CD (continuous integration and continuous delivery), can facilitate the development process and enable faster results.

Management of agile projects goes through a number of stages.

Agile project management may be broken down into five distinct steps:

  1. Evision

    It is at this stage that the project’s stakeholders and end-users work together to define the project’s goals and needs.
  2. Speculate

    At this stage of the project, the team convenes to discuss potential directions for the product, the techniques and approaches that will be employed to realise its objectives, and the technology that will be utilised to enhance its performance. Furthermore, the definitive timeline of the project is also established during this period.
  3. Explore

    In this stage of an agile project, team members brainstorm potential solutions to the project’s needs.
  4. Adapt

    The project team utilises the user input it has received to assess the final deliverables and identify any issues that need to be addressed. Through each iteration, they continue to make improvements and enhance the product.
  5. Close

    Agile project management has reached its conclusion. Step one is to pinpoint the problems that surfaced during and after the project was completed.

Why did businesses start looking for a better way to handle projects?

The popularity of Agile methodology has experienced a significant surge in recent years, as the significance of software engineering and IT has grown immeasurably. The origins of Agile project management can be traced back to the mid-1940s, with the emergence of Rapid Application Development by James Martin, which outlined the Rapid Iterative Production Prototyping (RIPP) technique.

The development of innovative approaches to agile project management became necessary, leading to the emergence of two of the most widely used agile frameworks: Scrum and Kanban. Scrum is based on the implementation of time-constrained iterations, while Kanban focuses on the continuous stream of output.

Mainstream agile approaches

Let’s compare and contrast these two well-known approaches of managing agile projects.


Scrum is an agile project management framework that emphasises collaborative teamwork in order to ensure the timely delivery of products. Sprint cycles, which are iterations of predetermined lengths, are employed during the project’s lifespan. It is essential that the team, under the guidance of the product owner, establish product backlogs, lists of desired features and functions, as well as bug lists; these items must be accessible to all team members in order to guarantee that the software will be delivered according to schedule.

There are four Scrum ceremonies:

  1. Sprint preparation

    Tasks for the next sprint are discussed at length at a team meeting.
  2. Quick-fire example

    Team members present the new capabilities or other accomplishments during a meeting.
  3. Constant daily standing

    Daily status meetings lasting 15 to 20 minutes.
  4. Retrospective

    A group discussion of what went wrong during the previous sprint to ensure the same mistakes are not made during the current one.


Kanban is an agile project management methodology that promotes efficiency and minimises overwhelm. Unlike Scrum, it does not utilise a backlog section, making it the preferred choice for many teams. Kanban employs a single column of work that is subject to work-in-progress (WIP) limitations, allowing teams to complete tasks in a timely manner and maximise their output. Consequently, teams are able to accomplish more in less time than they could with Scrum alone.

The following are some of the parts that make up Kanban:

  1. Narratives, or a compilation of narratives

    The essentials of what must be accomplished are listed.
  2. Rows or columns

    Created for usage on the Kanban board to differentiate between tasks, projects, and users.
  3. Limits based on the amount of active work

    Determines a group’s productivity and allocates tasks accordingly.
  4. Constant drops

    Part of the principles of continuous integration and delivery is the practice of releasing stories or other works as soon as they are finished.

Evaluation of the Price of Software

The concept of the “cost of building software” encompasses the cumulative amount of time, money, and resources invested in the development of a software program. Estimating software project costs can provide a number of benefits, including a more accurate assessment of the resources needed to bring a project to completion, a better understanding of the potential return on investment, and the ability to set realistic project goals and timelines. Additionally, having an accurate estimate of the costs associated with a software project can help decision makers make more informed decisions about the potential success of the project.

  1. Assesses the product’s utility from the perspective of both consumers and the manufacturer.
  2. Those working on the product have a clear understanding of their objectives and the timeframe in which they must achieve them.
  3. The team as a whole has a common understanding of what must be done to complete the project.

Estimation Methods using Agility

When attempting to estimate the cost of developing software, product owners have the option of using either the traditional waterfall approach or the more flexible agile methodology. In order to determine which approach is most suitable for the task at hand, it is important to consider the advantages and disadvantages of both methods. The waterfall approach is highly structured and allows for a more accurate estimation of budget and timeline, however, it does not provide much room for adaptation or adjustment as the project progresses. On the other hand, the agile methodology is more suitable for projects that require frequent changes and adaptations, allowing for greater flexibility and responsiveness. Ultimately, product owners must evaluate the specific requirements of their project and choose the method that best meets their needs.

Let’s have an in-depth look at the two approaches:

The Waterfall Approach

As one task is completed, the next is initiated in a linear fashion, without any assessment of the accomplishments achieved thus far. This strategy is distinguished by its linearity and there are no modifications to the features or scope. Nevertheless, the budget and timeline may be adjusted. Establishing a fixed scope makes it simpler to calculate the expense of the undertaking. However, when the budget and timeline are left variable, there are a number of potential problems that may arise.

  1. One of the best ways to determine if the improvements made to a product’s functioning will benefit both its consumers and the company that created it is to conduct user testing. This involves having users of the product complete tasks with the new features in place and then gathering their feedback about usability, performance, and overall satisfaction. Additionally, it may be worth considering what would happen if certain features need to be altered or removed down the road. In this case, it is important to have a plan in place for how to make the necessary changes without disrupting the user experience.
  2. Maintaining profitability often requires more than simply keeping costs as a variable. In order to effectively adapt to changing priorities, the cost of software development is often increased. This necessitates either extending the involvement of existing team members or hiring additional team members to ensure that the project is completed within the designated timeline.
  3. Maintaining a variable for an extended period may lead to a decrease in its market value. If the item is not delivered promptly, other businesses may take advantage of the opportunity and introduce similar products to the market.

Using an Agile approach

The development time and personnel required for creating software can have an impact on the cost of the program. To add additional time to the project, it is necessary to recruit more team members, which could lead to an exponential increase in the expenditure. The agile approach is a viable solution to this problem, as it allows for a set budget and timeline while also providing a certain degree of flexibility in terms of the project’s scope. This approach is characterised by the following qualities:

  1. Breaking the job down into manageable chunks

    Agile methodology is an effective way to break down a large project into more manageable components that can be implemented in stages. This allows for the cost of the project to be calculated more accurately, and it also facilitates the regular re-assessment of completed tasks in order to update features based on the feedback of end-users. By providing a systematic way to address the needs of stakeholders, agile project management can be a powerful tool in the successful completion of projects.
  2. Quick and simple alterations

    It is not feasible for a team to plan for every possible difficulty that may arise in the production of a successful product, so it is likely that some modifications will be needed throughout the product development process. Introducing new features that have the same functionalities as the existing ones will not result in any additional cost.
  3. A premature ending

    The client has the right to request an early termination of the project if all the agreed-upon features of the product have been delivered successfully and there is no economic gain to continuing with the current project team. This is advantageous to the consumer, who receives the essential features of the product ahead of schedule and at a discounted rate. A portion of the remaining contract (20%) is allocated to the project team.

Software engineering cost estimation techniques

In order to accurately forecast the amount of time, money, and other resources necessary for successful completion of software engineering projects, several methods must be employed. These methods include, but are not limited to, the following:

  1. Size prediction for the undertaking

    The complexity, characteristics, dimensions, and potential risks of a project are the most influential elements in defining its scope. To illustrate, building an e-commerce site such as or a social networking platform like each involve distinct challenges and scope. Despite their size, the two projects possess noteworthy disparities.

    In order to reduce the risks and uncertainties associated with project estimations, utilising ranges for total cost, project size, and estimated time is beneficial. Additionally, the product’s characteristics which are communicated as stories, can be estimated in terms of story points or ideal days. Furthermore, the duration of a project can be measured in terms of story points or ideal days.
  2. Story Elements

    The size of a user narrative is calculated in “story points”, which are a common unit of measurement. This includes activities such as incorporating new features, assessing and evaluating current features, and refactoring code. For example, Story A may be assigned 1 Story Point, while Story B may be allocated 2 Story Points. This allows us to determine that Story B is twice as lengthy as Story A. Consequently, the overall scope of the project is divided into three tiers.
  3. The best of times

    The project timeline is expressed in days, and the scope of the project is dependent on the team’s capacity to keep up consistent progress. When making basic estimates, it is simpler to relate them to days rather than using story points.


Velocity is a measure of the rate at which a team completes work over a specific period of time, often represented as a sprint or iteration. It is not always easy to accurately determine a team’s velocity at the beginning of a project, so it is often expressed as a range. For example, a single story may have an estimated point value of between 20 and 30 points per sprint.

The speed at which a task is completed is a critical element to consider when estimating how long it will take to get things done. To accurately forecast the velocity of the team, each story point should be broken down into separate tasks that need to be accomplished. The amount of time that will be needed to complete each activity can be roughly estimated, such as the time that will be spent on designing, reviewing code, implementing, testing, continuous integration, continuous deployment, and any other necessary steps.

It is recommended that the capacity should not be less than 70%, nor should it exceed 100%. Initially, there may be some fluctuation in the team’s output, but once the team settles into a consistent pattern, it becomes easier to forecast the completion date of the project.

Aspects of Estimation

The use of analogy, parametric estimates, engineering build-up, and extrapolation from real costs are all essential methodologies for predicting the cost of developing software. The data available guides the process, which typically begins with an analogy, and progresses to real cost in later stages of development. This depends heavily on the current phase of the software development life cycle.

Given the limited data available during the early development stages, utilising analogy as an agile estimating strategy is the most effective approach. As the project progresses and more information becomes available, the estimator can use this to make more precise predictions on the final cost.

Software engineering cost estimation through agile estimation techniques is most effective when done as a collective effort. The magnitude of the product is an essential factor in this process. Although there is no single, generally approved method for assigning user stories tale points, a variety of techniques have been outlined above. The Fibonacci sequence, “perfect days,” and “small-medium-large” are all approaches that are frequently applied to assign tale points.

The team is accountable for creating the release from the product backlog after assigning story points to the user stories. Their velocity is used to assess the sprint schedule, which then ascertains the number of releases (a distinctive measure of productivity in agile project estimation). This process allows the team to effectively estimate the amount of work that can be accomplished within a certain timeframe.

The team regularly assesses which user story to prioritise for the upcoming sprint, taking into account the number of story points required for completion. They also evaluate the complexity and velocity of the user stories to evaluate whether they can be accomplished within the allocated timeframe. This ongoing process enhances the accuracy of software development cost predictions over multiple sprints.

The Cost Estimation Process in Steps

There are a few stages to the cost estimating process:

Conceptual Outline Created First

At the outset of this project, the team will work together to identify the core features and functionality desired by the clients, as well as the desired outcome of the project. This process of establishing the high-level ‘epic’ elements will serve as the foundation for the project’s trajectory. This initial stage of the project will involve:

  • What is to be created is determined by the company’s vision, which also lays out its overall goals.
  • Incredible, game-changing capabilities that really help clients.
  • Applying the MoSCoW framework, we were able to determine what was absolutely necessary to bring the project to fruition.


The Product Owner must make an informed decision regarding the continuation of the project, taking into account the time frame, expenditure, and the amount of data to be compiled. All of these factors must be carefully considered before a conclusion is reached.

Prepare for a Release

At this point, a schedule is set for when each feature will be made available. To be specific, it entails

  • In the Queue of products: These are the “user narrative” for the product’s most important features.
  • Estimation: Planning poker is a game used by teams to quickly and consistently estimate the relative size and complexity of user stories. By assigning predetermined story points or ideal days to each narrative, the team is able to reach a consensus on the amount of work required to complete the task.
  • Prioritisation: In order to ensure that our client’s objectives are met in a timely and efficient manner, it is essential to prioritise the user stories. This will allow us to determine which tasks are the most important for the client and should be completed first. By having access to both the backlog and the size of each user story, we can easily make this determination and begin working towards achieving our client’s goals.
  • Preparing a release: Once the features have been prioritised, the next step is to create a release plan and provide an estimate of when the product will be released to the public. This will help to ensure a successful launch of the product and provide an understanding of when the public will be able to access the features.

Agreement to a Stable Fee

Upon the successful completion of the prior tasks, the subsequent step is to formulate a fixed-price project contract quote. It is beneficial to practice the most advantageous approach when estimating an agile project, which includes sustaining the duration and team size, while considering the scope as a flexible target.

Taking prices into account

When estimating the costs of an agile project, one should be prepared for the possibility of prices fluctuating. A considerable part of the overall cost increase can be attributed to the initial investments necessary for the development process. Upon completion of the development of a release and its subsequent launch, the program will be in a stable condition, leading to a decrease in the associated expenses of upkeep.

This article provided us with a comprehensive overview of the fundamentals of software engineering cost estimating in an agile environment. We learned that agile estimation techniques are often more accurate than those employed in a traditional waterfall setting. However, it is important to note that, since every project and team has its own particular objectives, there is no one-size-fits-all approach to software engineering cost estimation.

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