The Ultimate Guide to Software Project Estimation [Example Template]

Damien Filiatrault

Founder & CEO

Software Project Estimation. Three words are guaranteed to make anyone in software development shift uncomfortably in their seat. Until now.

Over the past 10 years, our team has planned hundreds of development projects. As you’d expect, we’ve gotten better and better at it!

Estimating is, by definition, a guess about the future. The fact is that the majority of software projects aren’t delivered on time, run over budget, and end up with fewer features than originally planned. It’s safe to say that, as an industry, we’re not all that good at software project estimations, so it’s understandable to be unsure about the process.

Yet there is no getting around the need for robust and accurate software project estimation because, ultimately, clients need to be confident they can fund a project before they commit to it.

What is a Software Project Estimation?

A Software Project Estimation is a document that helps define the resources (people and tools) you’ll need to build your project by listing specific tasks, how many hours it’ll take, and how much it’ll cost (roughly). If you don’t estimate properly or at all, there are many side effects including:

Depending on the contract in place, clients may have to pay more than they had budgeted.
The product itself may suffer, as corners get cut trying to deliver within unrealistic time and budget constraints.
The development team’s morale can be negatively affected, as they suffer from the stress and pressure of trying to meet unrealistic expectations.
A project may never be completed if funding runs out.

Over the past 10 years, my team and I have planned hundreds of development projects. In the process, we developed a methodology that has worked well and so, we created a template to guide others through the most essential parts of software estimations and project planning. To get started, head over to the Example Estimate Template, make a copy of the spreadsheet and customize it with your project requirements.

Table Of Contents

What is a Software Project Estimation?
Why Are Software Estimates So Hard?
Our Approach for Estimating Software Development
Who Should Do the Estimation Document?
Before Estimating Your Software Project
Use Case 1: Staff Augmentation
Use Case 2: Project-Based, with Defined Requirements
Two Ways to Estimate Your Software Project
Which Approach Is Better for Software Projects?

Why Are Software Estimates So Hard?

Originally published on Jun 14, 2021Last updated on Jan 4, 2024

Key Takeaways

What is software project estimation?

A Software Project Estimation helps define the resources (people and tools) you’ll need to build your project by listing specific tasks, how many hours it’ll take, and how much it’ll cost (roughly).

How do you estimate software development?

First, you’ll need to write a Product Requirements Document, which defines your project goals and the problems it solves for the end user. Once you have that document, you’ll define foundational tasks like user log-in and password reset flows, and estimate how many developers and designers you’ll need to complete the project, what kind of tools you’ll need to build out the software platform, and how much it’ll all cost.

How can we calculate the cost of software development?

There are two common ways to estimate a project by either breaking down the team or breaking down the project tasks. A team estimate is a top-down approach. For example, “Who will I have on my team, and for how long?” This is an estimation from an Agile perspective.

A task estimate is a bottom-up approach that comes more from the Waterfall School of Planning. You’ll outline the foundational tasks and user flows and estimate how many hours a developer and perhaps a designer will need to complete the tasks. You’ll list out all the foundational tasks, add up the hours you’ll need, and multiply it by the hourly rate of the freelancers to get the total estimated hours.

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