August 12th, 2022

How Much Does Development Cost? Five Myths About the Cost of IT Products

Useful observations about the financial side of IT development and customer misconceptions based on 20 years of experience.

“IT projects are too expensive” and “It's impossible to gauge the effectiveness of an IT system” are just some of the statements that show how much businesses distrust technology. However, changes in the market mean that companies are forced to step up their digitalization efforts. We have been developing software for over 20 years and are currently receiving numerous requests both for adapting ready-made IT systems and creating unique products. In this article, we will explore five popular myths about the financial side of IT development and share our observations with anyone who plans to create an IT product.

Myth 1. IT Development is a Complex, Expensive, and Time-Consuming Process

The concept of a digital product goes far beyond development and can include things such as pre-project research, planning, and putting together an advertising budget to launch and promote the product in one or several markets. The total cost of complex products may reach several hundred million rubles.

We prefer to implement custom-made products step by step, starting from the minimum viable product (MVP) and gradually scaling it up. This approach allows us to improve the product based on feedback from real users and functional metrics.

Conclusion: creating a large-scale and detailed 'spaceship' will require serious investment. However, you may identify the key features of the product for which users will be willing to pay. This will ensure the product's integrity and self-sufficiency.

In other words, you can launch the product using 20–30% of the total budget. The money you make from it will compensate for part of the costs and fund the next stages of development. For example, we have a medical project for a network of UK clinics in our portfolio that we have been working on for over ten years, with the first version released just eight months after the start of development. We also have experience launching an MVP remote banking service for a large bank in just 100 days. By the way, we still continue to work on this product and add new features to it. 

Myth 2. You Can Save Money by Using No-Code Systems

No-code is an approach to designing IT products using special platforms that do not require any coding. It can be used to create a company website, a corporate portal, an online store, a game app, or other IT solutions. No-code is used by multiple services and apps, mainly foreign ones: Tavalo, Reachr, Look App, Comet, etc.  

You need a good reason to outsource development tasks to no-code platforms. For example, a proven hypothesis about what business benefits such a move would bring. In our opinion, it is better to think about how to allocate resources efficiently instead of trying to save them. Explore the benefits of no-code platforms for specific business tasks, but make sure you understand how they will change your business and, most importantly, when it will happen. 
Conduct an experiment: make a prototype or an MVP of a new product using a no-code platform. Then show the results to your clients or investors, test the product together, and get some feedback. If everything is good, you may start thinking about how to grow the product further. 

Conclusion:no-code platforms boast numerous features and are easy to use. They are worth looking into, but only as an addition to the existing tools. Use them to diversify or strengthen your team and broaden the developers' perspectives and competencies. Don't try to radically change things if you already have an efficient IT team.  

No-code has its specifics and limitations. For example, such platforms can't be used to create high-tech solutions, fintech products, or large projects with the subsequent scaling to tens of thousands of users. In addition, if you choose a specific no-code tool, you won't be able to download the project code for yourself and will be forced to keep using the selected platform, pay for maintenance, and purchase licenses. 

Myth 3. You Can Assemble an IT System Using Available Products

All businesses start small. First, they choose one ready-made system, for example, a free task tracker. As things start going uphill, they decide to use a CRM system — preferably inexpensive, user-friendly, and ready-made. They choose one and integrate it with the task tracker. After that, they often realize they need a website and start making one on Tilda or on their own while still using the CRM. As things keep improving, they realize they need a system to automate business processes... 

Of course, the right combination of products may help in the beginning, but it is dangerous to assume such solutions will always match your needs and adapt to the existing realities. 

If you don't stop using different software for different business needs, you may end up with something called a system zoo: a ragtag set of systems, boxes, and makeshift solutions. And they are all different: 

  • They have different customization and integration options. Some constructors, ready-made solutions, and no-code platforms will never be able to properly interact with one another — like when your accounting system vendor has no plans to work with the payment system your website is integrated with. 

  • They have different technical and customer support services, update release schedules, etc. But end customers don't care that websites created on different platforms have different SLAs or that the server was unavailable at the time they paid for their order. Next time something like that happens, they will simply walk away and never come back. 

Conclusion: based on our experience, the more complex a product you are planning and the more mature your existing product is, the more you need a custom-made system or an upgrade with an architectural solution that will: 

  • meet current and potential technical and business requirements;

  • ensure good performance, security, and manageability; 

  • adapt to new requirements. 

Myth 4. No Need to Pay More, Just Hire a Team of Juniors

And who will train them? The development process must have an efficient combination of theory and practice, preferably using real-life cases. Do you have senior developers who will agree to train juniors or review their code instead of working on an interesting project? I doubt that. Technology is changing every day, so seniors also need to find the time to educate themselves if they want to keep up with the latest trends.

Putting together a team that consists only of juniors is like opening a dental clinic staffed with university students. You need specialists who will design the product and launch it on the market so that it starts generating profit.

Of course, every project has tasks with different levels of complexity. Having middles or seniors perform simple tasks is not economically viable, so you will need a certain number of juniors on the project, but they shouldn't make up your entire team. IT companies operate according to the following life cycle: juniors learn and gain practical experience, while middles and seniors complete priority tasks and start enlisting the help of juniors as their skills grow. Everyone shares experience and knowledge while working on the product. Juniors become middles, middles become seniors, and seniors become architects. As a result, the client receives the product, and the outsourcing company receives skilled employees and a satisfied customer. Win-win! Everyone is happy.

Conclusion: you could try finding the perfect combination of juniors, middles, and seniors for your project to be successful, but in our opinion, it is enough to consider the following factors during the pre-project stage to select the right team:

  • Customer requirements: the final version needs to be clear, detailed, and well-formulated; check if the client has any plans to change them. 
  • Project complexity; its size and scope in addition to coding: analytics, design, various types of QA, CI/CD, etc. 
  • Tech stack. 
  • The availability of experts with experience in similar projects. 

Any team needs a work system and an efficient management process. Team members need to know who is responsible for what, how interaction with the client is set up, major deadlines, where to get project documents, etc. The team should work smoothly. There should be no disagreements or misunderstandings. Therefore, it is more important to choose the right management style and team lead than trying to pinpoint the ratio of experienced and not very experienced specialists.  

Myth 5. Project Analytics Are a Waste of Money

Sometimes businesses will have a product concept, but no terms of reference, clear requirements, or understanding of where to start. In this case, kicking things off right away is risky, as the requirements will inevitably change along the way, deadlines will shift, and costs will increase. You need an understanding of the project to get a good result. You need analytics. 

One of the ways to reduce the time needed to prepare for the launch of IT development is the discovery phase. In short, this is a preliminary stage for identifying requirements, analyzing business goals, and developing the concept of a future product.

What tasks does the discovery phase help to solve?

  1. A company has been using a foreign solution, but now wants to switch to a Russian one or design its own system. To succeed in the Russian market, a product must meet several conditions: comply with the law, have no global competitors, have ample sales opportunities, and be in demand. It makes sense to double-check everything before investing in a product that your target audience won't even want to use.

    The discovery phase allows you to gather information about competitors and the main features of their IT products and understand how much they suit you — perhaps you will need to change something or forgo certain business processes to start using a specific product. Alternatively, you may need a 'combination of analogs' to design your own system, meaning you will borrow some features from different systems and design others from scratch, since they may play a key role in promoting the end product on the market. You should also pay attention to the architecture of your future IT system: understand how you will switch to it, decide what to do with the data, and choose which processes or users to migrate first.

  2. A customer who knows their industry wants to automate a certain process using digital technology or replace a foreign product that has been withdrawn from the market. Here, the goal of the discovery phase is to identify the main value of the product and use it to create a sales concept, as well as to analyze the product's pros and cons for a particular customer and their environment and choose the best option. In addition: propose an architecture, implementation stages, and visual clickable mockups (if necessary), select special devices, and make preliminary budget and schedule estimates.

  3. A startup inventor from the IT industry sees a possibility to uberize an existing business model. In this case, the contractor, together with the client, immerses themselves in the field, sometimes with the involvement of scientific expertise. They then run customer development, make a list of features users need, set priorities, and describe the most convenient scenarios for users. As a result, they quickly release a minimum viable product (MVP) to see if the business model can really be uberized.

  4. A large enterprise wants to improve its business processes, for example, optimize costs or increase profits. To do this, it needs to optimize and automate its existing processes. In this case, we interview all the parties involved, analyze the enterprise's IT systems and their interaction with each other, and describe the existing business processes. As a result, we see what processes can be optimized. Next, we analyze the client's big data to reveal patterns (We recommend using informational dashboards for that). And finally, we get the concept of a comprehensive solution and preliminary information about the project budget and deadlines.

Conclusion: if a business has an idea but no terms of reference, clear requirements, or understanding of where to start, the discovery phase will help it to avoid unnecessary spending and create a product that will be in demand and will be able to generate profit.

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Source:  E-xecutive.ru

Learn more about the development processes in IT from our article: In-house Development and Outsourcing in IT: How to Strike a Balance

Join our Medium community to keep up-to-date with our experts' insights: How to Calculate the Estimated Costs for Web & Mobile Projects

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