Selecting a Software Partner – What to Do When the Estimates Differ

You’re a smart custom software buyer. You know that switching software partners is extremely painful and therefore your partner selection is a long-term choice. As a result, you’ve given a lot of care to your software design and development partner selection process. You are down to your final two choices, and you have vastly different project cost estimations. How do you select? What’s your next move?

My advice is simple:

Work with both potential partners to try and understand the project cost difference before selecting your partner.

You owe it to yourself to fully understand why the firms are estimating your project differently.

In my experience, cost estimation differences occur for a few key reasons:

  • The firms have a different understanding of what they should built.
  • One of the firms is naive — in either cost direction.
  • One firm is using overly-aggressive estimation to win the work.

Do you ignore the elephant in the room and pick the potential partner with the smallest estimation without fully understanding the cost difference? Then you will likely have some challenging conversations about cost and expectation management in the future.

Estimating custom software engagements is difficult. Therefore, continuing the conversation with both partners will help you:

  • Ensure that each partner aligns with your vision for the software product.
  • Understand how each partner deals with your concerns.
  • Identify any potential naivety.
  • Refine the project implementation plan during the sales process.

The following is an outline for brokering the conversation with each potential partner.

Meeting Setup

Reach out to both potential partners. Be open, honest, and curious to learn. Communicate that your goal is to establish a budget that correctly capitalizes your project for success.

Honestly sharing the major elephant in the room before the meeting will cause each potential partner to give your project another critical review. As a result, this will enable them to come to the meeting more prepared to discuss your concern.

Share with the firm that gave the higher estimate that the other firm provided a lower estimate and you’d like to understand their perspective.

Share with the firm that gave the lower estimate that the other firm provided a higher estimate and you’d like to understand their perspective.

Provide both firms with context on what portions of the estimate had the largest deltas.

Meet with the firm that provided the higher estimate first. Understanding why they provided higher estimatations in some areas will help better prepare you for your meeting with the firm that provided the lower estimate.

During Each Meeting

Be open, honest, and curious to learn. Listen and engage. If you haven’t asked already, consider asking the following questions:

Can you walk me through your estimation process?

Hopefully, you’ve been able to see a transparent breakdown and rigorous process of the estimate. If not, look to understand how the estimate was made. During the conversation, listen for the rigor that is put into their process. Without a rigorous estimation process, it’s easy to create a naive estimation.

Is there specific IP that helps reduce the engagement effort?

If the answer is yes, ask for examples of how they’ve leveraged that IP in the past. In my experience, specialized IP doesn’t always translate to faster development. Consider following up with references that have leveraged that particular IP to validate.

What happens if we don’t spend all of the budget?

Many high-quality custom software design and development consultancies use transparent billing. It’s common when a firm finishes a project early that the client isn’t committed to spending all of the budget.

What happens if more budget is required to complete the work?

It’s important that you understand the engagement model and how the client handles overages. There are a few major engagement models.

What is your average hourly rate?

It’s good to understand this number for comparison. Sometimes, firms use iteration billing or milestone billing. In that case, ask them how many hours per week each team member will spend on the project and use that to back into the hourly rate.

Cost Estimations

When cost estimations differ, it’s always worth it to learn more. Addressing the elephant in the room should help you select the best software partner for you.