Where do the differences in project valuation come from?

Where do the differences in project valuation come from?

When commissioning the writing of software for your business, you have probably encountered the phenomenon of different valuations of software companies and the fact that the differences in price can be significant. Similarly, when you own a software house, you often hear from your potential clients that your quote is much higher than bids prepared by other companies.

In this article, I would like to explain why the dispersion of prices for the application development service is so wide. I will also discuss risks associated with choosing a bid which is attractive only because it is much cheaper than the others.

The price dispersion of application design is very large. A small project can be written by a student, a small team or a larger company. When it comes to larger projects, small or large companies should be considered because no single person or small team will be able to carry out such a project (and if you decide to take this step, you will end up with very poor quality software). In the vast majority of cases, a smaller firm will always offer a lower price than a larger firm. However, this is not due to the fact that a larger company has a higher margin and wants to earn more. On the contrary, the rates are usually very similar to each other. A larger company, due to much higher maintenance costs and a larger team, in practice, has a lower margin on the project. So, what is the difference in price for the same project? Here, there is only one answer - quality and approach to its implementation.

Of course, it all depends on how you approach your project. If it is to be a project that is key in your organization and will be developed over the coming years - quality undoubtedly matters here. It will save you both money in the long run and ensure peace of mind that your business is based on stable working software.

If, on the other hand, you do not associate a long future with the project and it is not crucial in your organization - you can risk having the software written by a single person or a small team, although even in this case it is worth your consideration, because in the long run, it may be a bad choice. You cannot be sure, however, whether in the future there will be no need to develop this project or whether it will not reach its performance limit due to incorrect architectural assumptions and therefore, it could be necessary to create it from scratch (because the costs of refinements will turn out to be very high).

And what exactly is quality? After all, you will receive the same software, regardless of whether it is done by a small team or a larger one. There may even be the same, equally professional specialists in both teams. The devil is in the details of the processes and people who coordinate the project. In case both teams have the same level of sophistication and experience, in theory, the same good quality lines of code should be produced. Therefore, the organization itself and the approach to teamwork will be crucial.

Additional people in the team

Larger companies have more extended teams, primarily with people such as Project Manager (PM), Tech Leads (TL) or dedicated testers. In smaller companies, such people are usually not employed, so costs are lower, which is why the price of the project is usually lower. What are their roles and what are the benefits of employing these people?

Project Manager - you will have frequent contact with this person. He/she will report to you and investigate when something is unclear in the project. He/she will also be the person you can always turn to if you want to learn anything about the project or modify something in it. On the internal side, the PM will coordinate and supervise the project, create tasks for team members and follow the implementation roadmap, coordinate the team, intervene and solve problems. In a word, he/she makes sure that the project runs according to the previously agreed on plan. Without a project manager, the project is carried out only by a team of programmers who do not have intuition and design perspective, because they are focused only on working on the code (i.e. strictly technical).

Tech Lead (TL) - This is a technical person who has the most experience in the team and who has completed many projects in his / her professional life, solved many problems. This knowledge allows you to avoid potential technological problems in your project. The tech lead has close contact with the project manager, bonds with the team of programmers and provides them with support at every step. He is also responsible for designing, together with the programmers, the main architecture of the project. He checks the quality of the work performed, he also looks at the project from a business point of view, not only from a technical point of view. His presence in the project allows you to build more stable software, avoid the risk of technological debt, and ensure optimal scalability of the project in the future.

Quality assurance (QA) - the quality assurance testers do thorough review of the developed software at every stage of its production (not only the final version). In addition, testers are involved from the analysis stage of the project itself, thanks to which they thoroughly understand the project, and already at this stage they are able to raise possible threats to the design of a given functionality, based on their previous experience. A company without a QA department risks that the delivered software will not be properly tested and that not all test cases and scenarios have been taken into account. Consequently, there is a much higher probability that at some point the software may start to malfunction or not work as expected by the customer.

I think that after presenting these three key items in the project, you can easily conclude where the higher valuation of the project comes from and that it does not result from overpaying. However, there is an additional fee for full-time jobs and quality, thanks to which we get better software that cannot be provided by a company that does not involve the above-mentioned people in the project. Without their participation, the project will obviously be created the same at first glance, but with some reservations (which of course may, but do not have to, occur):

• the quality of workmanship will not be at the same level - the code may be written poorly (no code-review by an experienced person), at the same time, poor performance and security will be ensured (no boundary assumptions, no thorough tests)
• some application processes may turn out to be incorrect after some time (because no one predicted it nor asked for more details)
• application architecture will be at a lower level, unprotected against various special cases of extreme operations
• the software will be more difficult to scale and develop in subsequent iterations - over time, the technological debt may be at an increasingly high level
• the application will not be thoroughly tested on every possible level
• maintenance of the application will be less flexible - due to lower performance and unpredictability of potential threats, the costs of maintaining the server infrastructure may be more expensive and more difficult to maintain

Design processes

Processes are also another important aspect. The larger the company, the more structured it is in terms of processes. Each structured process, in turn, makes the company less chaotic, and the software development process is based on observing strictly defined rules that allow you to build a much better quality application. Processes are also additional costs incurred by the company, hence the assumption that the margin of such a company is lower - the company invests in itself to be better. Many bids also do not include daily short meetings of programmers with the Tech Lead and Project Manager (so-called daily), during which they raise concerns about problems together, discuss the vision of the project, the best solutions that can be applied - the lack of which may have fatal consequences in the future of the project.

To sum up – when the quote you receive is higher than the others, consider whether the other bids of companies really offer the same. Ask them in detail whether they include people such as PM, TL in the project and if so - for how long.

Also ask about the testing process - whether the software will be properly tested by dedicated people and what these tests will look like.

Also, ask if the company has appropriate quality processes in the team and in the entire organization. A company that has introduced such processes will easily provide you with detailed information and present the entire process. The more detailed the questions you ask, the more aware you will be and the more sure it will be that the right decisions are made - whether by choosing a cheaper bid or by choosing a more expensive one.

The most important factor is your business and that it works stably. So be sure to consider whether the more expensive bid you receive is still within your budget, is it worth saving by choosing a cheaper bid. Perhaps it will only seem cheaper -during the first stage, and in the long run the costs may turn out to be higher than when choosing a more expensive bid, which will allow for much greater flexibility in maintaining and developing the software in the future.