Avoid Sunk Software Development Costs

You started out with the best intentions. You had a budget and planned to stick to it.

Let’s say you began your software development process with a fixed sum of $50,000. You sign-on with a firm who says they can deliver exactly what you need within your budget. As you move through the process, the mistakes and software development costs begin to grow.

Or maybe, your project idea was murky at best. Captured in a spiral bound notebook and a few scattered Google Docs. Your software partner didn’t work with you early on to define the business problem and users leaving you with an assortment of disparate features and no logical way to logically connect the dots. They were your “Yes” people. We want to add a back-up capability. Yes! Let’s reconfigure the UI. Yes! Now you have the bloated invoices to prove it.

Entrepreneurs and businesses in this situation aren’t alone. Gallup estimates the national economy loses $50-$150 billion each year due to failed IT projects.

Assessing project buoyancy and the sunk cost fallacy

Questions start to overtake your thoughts. Have I wasted it all? Maybe you took out loans or a lien to pay for the development. Then another equally destructive thought starts to creep in, “Well, I’ve come this far. I might as well continue on. It will be worth it in the end.” Wrong. Software development should never be continued because you’ve “come this far.”

You have two options. Commit to fixing your solution or abandon the effort. Choosing the right one is the difference between salvaging this disaster or piling more money into a ship already taking on water. In this case, the sinking ship is known as the Sunk Cost Fallacy.

When an investment goes belly-up there’s a human tendency to want to continue on the current path in hopes that more money and time will make it better to justify the previous waste. The Sunk Cost Fallacy is generally categorized by thinking that follows this formula.

W has been invested in project X. More money is needed to complete it. Let’s call this Z. Because Z will complete the project, it is justified. Throwing money at a wall because you’ve already invested a large sum isn’t necessarily the answer. The better move is to consider the long game.

 

How to avoid wasting money in software development

Establish the business needs and user perspectives first. Development is a careful dance between satisfying user needs to add true value within the project budget and scope. By establishing the goals you intend the solution to solve for a specific set of users, decisions about prioritizing the development of the proposed features can be made with an understanding of their relative value in mind. Here, value is defined by their role in forwarding the identified goals. Discussions of value in software development create a layer of removal between any recommended features and the people making them. If a suggestion comes from a place of authority, but it is determined to minimally impact the intended goals of the app, it’s easier to justify adding it to the bottom of the feature list.

Invest smart. There is a difference between falling victim to the Sunk Cost Fallacy and intelligently managing software development costs. The Sunk Cost Fallacy is defined by aimless investing and the idea that seeing through a poor investment will make it better. Continuing to build a mobile solution on an unstable or poorly built platform is much like trying to construct a house on quicksand. The more you struggle, the faster you crumble. Rather, smart investing is taking stock of your options and selecting the path where you will see the most long-term return on your investment.

If you fear you or your business have made a questionable investment in software development, ask yourself these four questions to determine whether to continue on.

• Does my app add value or fill a pre-existing user need?
• Is my solution unique, or does it offer new capabilities other apps don’t address?
• Is my app scalable, and can it be monetized?
• Do I have access to or can I raise the capital to continue development?

If the answer to these three questions is “Yes,” consider staying the course.

Redirect development early on if you spot a cause for concern. It can be easy to focus on a short-term loss, especially if it’s a large one. But if you see true value in your solution, a simple redirect can get your app development back on track. Take a step back, and ask yourself how you ended up in this situation. Was it because you valued economic savings over lasting development value? Maybe. Regardless of how you landed here the right software development partner can throw you a metaphorical life raft to keep you and your software from going under.

It may be tempting to remain working with your current provider. Maybe they were a personal connection or you’ve built a new working relationship. If they aren’t satisfying your needs, pivot early or wish you did later.

Choose the right software provider from the beginning. For anyone looking to choose a software provider outright or begin working with a new provider after development has stalled, committing is a little like putting your life in someone else’s hands. And, in essence it is. After all, the success of a development project can have very real consequences for your personal and professional life. Your stress level, happiness and even financial solvency rest on on-time and in-budget software development costs. Meet the hard questions head on. Ask yourself these three questions to help you determine whether the software provider you are considering is up to the task.

• Is your new partner solvent?
• Do they have proven experience developing for your platform?
• Do they give you the impression they will work with you to make good decisions rather than always saying, “Yes,” especially if proposed ideas have the potential to harm the project?
• Do they have the breadth and bandwidth to support your solution as it grows and evolves?

That last question is an important one. One of the best advantages to working with a software

development partner is they become as invested in your solution as you are. They learn the history. As a result, they will be able to provide the best, quickest and most economical support down the road. Why? They won’t require onboarding each time you want to make a change, release a new version or add additional functionality.

Choosing the right development partner from the outset is particularly important for businesses contending with limited capital. Looking at you tech entrepreneurs. Unless you plan to hustle for more venture capital money, select carefully now and confidently develop later.

Pay special attention to software development firms looking to be in touch every step of the way and make decisions together. If a potential development partner begins talking about early delivery of wireframes and mockups for review, they are a gem. Don’t let them go.

Ensure your provider’s a process help you achieve clickable software faster. Projects running Agile Methodology encounter this situation less. Why? The Agile process is characterized by delivering business value as soon as possible. Frequent releases and demos let you know if development is on track. We believe in speed, combining lean UX and Agile lets us work and iterate quickly to understand the business needs and create software that delivers on them. Be wary of providers selling a process with long lead time. Investing in lengthy analysis — to the tune of several months — before development begins diverting budget from the development manpower it takes to realize your solution.

According to research by the Project Management Institute, “highly agile organizations able to respond quickly to changing market dynamics complete more of their strategic initiatives successfully than slower, less agile organizations” — to the tune of 69% compared to 45%.

Leverage efficiencies. Look for any opportunities on your project to speed progress so development and investment remain directed and not aimless. For projects on a tight timeline, consider asking your provider to create high fidelity wireframes, so development can begin with the design work is being finessed.(Not to name names, but we’re done this for clients with great success. Ask us about it.)

Invest future-first. If things go your way, your app and business will be around a long time. Choose a partner that helps you remain relevant 5 or even 10 years down the road — ancient history in app time. A good partner asks “Why” to position your business for growth. The right questions can even help you reconsider what you need and the best model to achieve it. Your partner should make you smarter and not be running to catch up. In selecting a software development partner, consider their experience.

• Do they possess the expertise to anticipate emerging trends and how those needs will impact your trajectory?
• Do they have examples of success they can reference?

Past experience predicts future success. Consider the long game now. Your future depends on it.

It can be hard to walk away or divert development from a project slowly sinking beneath the water line. The better option? Start out on the right path from the beginning. Gather your stakeholders in a room before you reach out to a development partner. Identify your goals. That way when you approach a partner to assess your strategy and begin development. You’re confident that any recommendations they provide is building on your best effort.

The bottom line is this. No one has all the information when they begin ideating around a product. New opportunities and challenges come to light, when they do — make sure your partner is nimble enough to adapt and redirect or find another partner who will.

Photo courtesy of Aleksandar Karanov.