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How to Budget for Software Project Example

How to Budget for Software Project Example

When it comes to software projects, budgeting is essential. With every new release, there’s a greater chance that your project will reach its destination on time and within budget. But if you can’t budge the budget, you might as well forget about the project altogether. It doesn’t matter how great your idea is or how talented your team is; without a healthy budget, your project won’t happen.

How to Budget for Software Project Example

1. Estimate the Value/Impact of Your Project

How much is this software worth to you? Before setting a software project budget, figure out how much you hope to earn (or save) with the software you’re imagining. Otherwise, it’s impossible to know if the project makes business sense—regardless of what it might cost.

Building a model requires understanding the business and project. If you’d like help with this work, we may be able to assist.

2. Understand Internal Costs & Get a Ballpark Estimate

If you have an internal development team, ask them to estimate how long it would take them (in hours) to build the product. This will give you a useful point of comparison when talking to outside developers.

You should also have a holistic understanding of what the project is going to cost internally, including marketing, ongoing support, executive time, the opportunity cost of internal resources, etc.

Then share your project with the software firms you’re considering. Pay attention to the level of detail in their response. It will tell you a lot about how much transparency you can expect from them going forward.

If you talk to Atomic, we’ll introduce you to our budget/engagement modeling process:

  1. Using several estimation methods and 17+ years of experience, we’ll consider the project from all angles—identifying risks and unknowns.
  2. We’ll present you with a budget range that we believe will give you enough capital to succeed. (Our budget model also expresses cost in terms of time, given an ideal team made up of developers, designers, and delivery leads. We encourage you to compare our estimates with your internal team’s estimate.)
  3. We’ll create an engagement model that will help you evaluate different options and choose a responsible budget for your first release.

You’ll then need to decide if the value of the software falls within our budget range. We are dedicated to our clients’ success, so Atomic won’t work on projects that we believe are undercapitalized. Undercapitalized projects cause a great deal of pain for everyone, and they don’t cost less in the end.

3. Secure Funding for 150% of the Ballpark Estimate

The reality of custom software development is that it’s never “done,” and there are always more ideas than the budget can cover. There’s also a significant risk that the development team will uncover previously unknown complexity, adding cost to the project. To protect yourself, secure funding internally for at least 150% of the ballpark estimate.

It’s much worse to spend too little than it is to spend too much. Allocating funding for 150% of the initial estimate doesn’t mean you have to spend the money, but it does protect you from the disaster of being undercapitalized.

Investors know this idea as “keeping some dry powder”—they anticipate the need for future rounds of funding, and they recognize that the first round may be wasted if there’s no way to get to the second round.

3a. If it’s a Rewrite, Buffer More

We’ve rewritten a number of software products and internal tools over the years and learned that they are uniquely challenging.

Every rewrite starts with a set of core features to be replaced. But there are things about those features that you can’t know until the project is underway. Digging into the old system’s features always uncovers details and corner cases that weren’t apparent at first (much like a fractal). This makes scope very difficult to control.

As a result, consider securing internal funding higher than 150% of the ballpark estimate. And be ready for tough conversations about scope priorities throughout the project.

4. Set a Phase 1 Development Budget

Work with your software developer to set a fixed project budget for Phase 1 of your software. It should be in line with the original ballpark estimate (but below what you’ve funded internally).

A fixed budget will focus you and your team on the hard work of defining and building the smallest possible product that delivers value. You’ll need to make hard choices about scope. The team will need to offer creative alternatives and tradeoffs. And you’ll be forced to build less and release sooner.

This is intentional! Once you release the software, you’ll learn a lot from your users, which will help you plan future phases. And you’ll still have money left over for key updates and bug fixes.

5. Build the Smallest Possible Product that Delivers Value

Now you (and your software team) need to do the creative and challenging work of figuring out how little software you can possibly build that, when deployed, will start delivering value.

Cramming in as many features as you can is a recipe for cost overruns, usability problems, and quality issues. Instead, focus on a smaller set of functions, and use human-centered design principles to create a great user experience.

Project Budget Example

The first project budget example is for a small construction project. You can use the following template for most of the projects. But you need to keep to one critical concept: 

project budget example
Click to see full size image.

You need to use Work Breakdown Structure elements here. 

It means I used a specific technique to decompose the work into the tasks. Using the concepts of WBS and bottom-up estimates is mandatory if you want to create an accurate budget. 

Project Budget Example in MS Project or Other Tools

Excel will do the trick for most small and medium projects. Moreover, you can use one sheet for one deliverable to make the budget more usable. 

Nevertheless, let me give you an example of the same project budget but in a project management application.

First of all, you can have a running list of all project resources separately. Then, you can create the resources availability calendar, specify regular and overtime rates, and contact details. 

It’s Merlin Project. Click to see full size image.

The best thing about it:

Project schedule and budget will automatically take this information into account based on when you assign a task to a specific resource. 

Just a side note: I never call real people a “resource” day to day. I would use a name or a title. But, when speaking about an open position on your project, it’s okay to call it a resource.

project budget in Merlin Project (MS Project)
It’s Merlin Project. Click to see full size image.

It all means that you can safely move the tasks around without fear of forgetting some public holiday or extra cost of the overtime. 

Likewise, project management software allows you to allocate budget granularly to specific tasks and resources. 

Software Project Budget Example 

Let me show you a software project budget example. First, it’s essential to understand that each industry and company has a different way of estimating and controlling costs.

In software development projects, a PM usually tracks the cost of the team. This is because that’s the biggest part of running costs. 

software project budget example

As you see, here, we can plan and track the monthly budget in a simple spreadsheet. 


Most of the companies use a variation of a Times and Materials contract. We bill the project owner per hour, day, or week of actual work by a resource. Sometimes clients agree to “pre-pay” for a month in advance. 

However, software projects always come hand in hand with some hardware.

IT Project Budget Example

In addition to the tracking efforts, you need to budget for infrastructure to host your software.

But there’s a catch: 

Nowadays, there are so many payment plans that showing one example is not representative. 

Nevertheless, companies like Amazon and Microsoft provide calculators for infrastructure costs:

You can use them as a starting point, but you need to make some usage predictions to ensure you don’t overrun the limits of your payment plan. 

These project management examples are excellent, but you can’t re-create them merely by looking at pictures. There are lots of considerations behind each line here. 

Let me share my tips on creating an accurate project budget. 

What is a Project Budget?

Before we dive deep into the practical aspects of creating a project budget, you need to understand what it is: 

A project budget is a tool that calculates the total funds authorized to execute the project. It contains planned expenses for all project activities, including wages, materials, fees, risk reserves, etc. The project budget is created based on the Activities List.

So, it’s not just a number, not the sum of all planned expenses. Instead, a project budget is a tool that helps you prove all the required resources to execute the work you identified. 

Best Project Budgeting Software


Best budgeting app overall

Cost: Free

Mint is one of the most popular budgeting apps and for good reason. It is free to use, something rare among the best budgeting apps, and you get financial budgeting shared by 24 million users. 

The app allows you to create a personalized budget and will then monitor your spending. It studies your spending habits and advises how to increase your savings. It will also check your subscriptions to ensure that you are not paying for services you do not need. With MintSights, you can set goals to reach financial milestones and build a stronger financial foundation. Once you connect your accounts, you can easily navigate between outstanding account balances, your monthly expenses versus spending, and even access your free credit score. Mint is compatible with not just banking accounts, but also your credit cards, loans, and investments. You can even file your IRS taxes and receive your refund through the app’s integrated TurboTax services.


Best budgeting app with digital envelopes

Cost: There is a free version with ads, or you can upgrade to an ad-free plan for $7 per month or $60 per year.

Goodbudget is a budgeting app that helps you create and stick to a budget. There is available debt tracking to keep you motivated and on track. It also helps with money management so you know exactly where your funds are and how they are performing. You will have to subscribe to Goodbudget, but once you do, you will have wide access to the app through both the web and multiple phones. This means that it is easy to share your account with others, like a spouse or family member. It helps you stay connected financially even if you are physically apart, helping to prevent miscommunications and financial mishaps. All transactions are synced to the cloud so you never have to worry about certain financial transactions going missing. Review pie charts and reports to track your spending, with generated reports to show your finances in greater detail. Digital envelopes help you categorize your finances into available funds with each envelope assigned to certain expenses. It is a visual way to improve your finances through the help of virtual tools. 

Personal Capital

Best budgeting app for investors

Cost: Personal Capital is free to use.

More than 2.8 million people utilize Personal Capital, and it is a portfolio tracker specifically designed to help with your investments, offering a unique digital approach to your personal finance. The app works with several different types of accounts, including your normal banking accounts, as well as investments, stocks, and retirement funds. The exclusive Retirement Planner tool helps you view your 401K, IRAs, and also your debt so you can have a complete, well-rounded portrait of your finances at the click of a button. The Cash Flow graph stacks your income versus your expenses for an overall financial snapshot that is easy to understand, plus there is an Investment Checkup tool that checks your investments, looking for ways to minimize risk while maximizing rewards. The Retirement Planner is an excellent option when you want to create and manage your retirement. You also have the option to join Personal Capital as an investment client so you can receive direct support from its financial advisors. 


Best budgeting app for overspenders

Cost: There are three subscription plans, in addition to a basic plan with limited features for free.

Type of planCost
Lifetime One-Time Purchase$79.99

PocketGuard takes a different approach to budgeting, utilizing smart algorithms to manage and track your spending. It also monitors your bills, helping to ensure that you do not miss a payment and risk falling further into debt. There is a bill tracker and organizer available as soon as you link your bank accounts. Any subscriptions you have will be automatically flagged and built into your monthly budget. With the IN MY POCKET feature, the app will automatically calculate your monthly expenses and then advise you on what is left over to spend. It also can help you negotiate better interest rates on your existing accounts, helping you save those extra dollars. It is easy to identify what disposable income you have to spend when the app does all the calculating and reporting for you. You do not have to pay to use PocketGuard, although you will need to subscribe if you want to access all of the best.


Busting the budget for a software project can be an daunting task, but with the help of some tips and optimization techniques, it’s possible to do just that. By setting a budget and sticking to it, using estimates, andnegotiating the price of the software, you’ll be able to produce a high-quality product at a lower cost. If you’re unable to meet your price limit or if you find the cost of the software too expensive, don’t worry – there are plenty of resources available to help you reduce your costs.

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