Runaway costs are a primary concern when commissioning software. The risk is real. You can’t afford to write a blank cheque and may be inclined to seek a fixed-price contract where the specification and price are agreed at the outset.

Software differs from so many other areas of business in that it involves complexities and decisions that are very hard to unpack and get right upfront. As you build your product you inevitably gain more insight, and you want to incorporate such learnings. An effective approach should be one in which change is not only normal but desirable.

Fixed agreements hamper your ability to respond to change:

• While your conception of the product evolves or may even pivot you will be committed to building a version of the product that has already been invalidated

• Your ability to respond to changes in funding and revised cash flow projections will be constrained

There are further downsides to fixed agreements:

• The exhaustive specification process required, which itself yields few insights, tends to delay the start of development, learning, feedback and time to market.

• The investment in nailing down every detail delivers diminishing returns. Some details are better worked out by iterating on a functioning product.

• They don’t favour fair outcomes. With the true costs of the venture unknowable at the outset, the chances are that one party will be poorly served: either the client who overpays or the vendor who is left out of pocket. This dynamic - betting against each other - does not support the long-term relationship needed for an ongoing venture.

At Passacaglia, we prefer strategies that allow us to manage costs together and so derive the most value from your budget:

1. Base specification on visual design. This reduces the risk of underestimation by flushing out hidden work.

2. Break work down into tasks of no more than a few hours. This reduces the risk of underestimation by flushing out hidden complexities.

3. Use data on past performance to refine estimates, building in realistic contingency.

4. Prioritise areas of technical and business risk to discover upfront any reasons why the project cannot proceed as planned.

5. Invest in exploratory work: Use upfront visual design, prototypes and time-boxed investigations to acquire insight into the true costs of your planned project while there is still time to change course, reduce scope or withdraw.

6. Avoid over-investing in any single feature. Strip each feature down to its essentials so that your budget is applied to creating genuine value.

7. Adopt quality control measures that are commensurate with risk: Choose quality control measures where the cost of prevention does not outweigh the cost of cure.

We find this results in:

• Change being welcome: the project plan is easily adjusted in the light of new information.

• Costs reflecting the actual effort involved.

• The parties engaging collaboratively to find the best path to market.

Want to find out more about our managed budget approach to costs? Discuss cost management with us. We'll give you impartial, professional and useful advice, free and without any obligation.

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