Costing hours of software development

Published on April 24, 2015

Costing hours of software development

Today I will talk about a sore subject for both software buyers and the provider of this service - the cost of development. It is clear that now is not the best time to scatter budgets. But this does not mean that manufacturers should work at a loss. Many talk about the greed of entrepreneurs, but I’ll tell you this: there is nothing shameful in doing honest business and adequately counting your bones.

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Our company is developing Russian software for video communications - which, you guess, is not an advertisement here. Not cheap, not expensive; standard, high-quality software. Integration with hardware solutions, flexibility, clouds - everything your heart desires. Literally at the end of last year, we realized that a chapter on economic feasibility should be added to the proposal. So that all issues are swept away at once, in order to save time both ours and customers, because again: time is money.

It turned out that customers really do not understand how much an hour of work of a highly qualified developer with a constant official market salary costs. Sometimes customers are guided by the prices of freelancers. We have nothing against them, but these are completely different guys.

At first, we hoped to find some methodology for calculating the cost of software development in open sources, but failed, since no one made such calculations.

So we did not spare the time and did everything ourselves. The final formula turned out to be universal and surprisingly simple:

Hour = ZP / 36 ,

Where ZP is the average salary of a group of developers, including the manager involved in the project, and the number 36 is the calculated ratio of the cost of development hours to the salary of the developer.

To avoid allegations of unsubstantiation, we provide a completely transparent justification.

The
scope of software development work turned out as follows: • analysis of requirements, designing capabilities;
• design of architecture and interfaces;
• development of documentation and integration plan;
• coding and assembly;
• product test;
• installation, qualification test;
• maintenance (refactoring, code correction, versioning support) - 30% of capacity.

About 30% of the capacity we say separately. Many development companies do not include support in the composition of work and, accordingly, in the final cost. As a result, the customer pays extra for any bug, for the slightest correction of the code.

We prefer to work with a high degree of responsibility, supply customers with “turnkey software”, so to speak, and provide full technical support, because it is not serious to develop sophisticated software working on the principle of outsourcing. In our experience, customers are more likely to agree to pay for support beyond what is required than to shoulder the problems of maintaining the code.

Back to the methodology.

Remuneration includes:
 salary, including income tax of 13%;
 premium - nowhere without it: did everything on time, the client likes it - get the bonus;
 Payments to the pension fund and social insurance fund 14% (social tax for software developers is preferential).
 Medical insurance 1% of the salary;
 Food compensation 2% of the salary (seriously, we have it).

The number of working days in a year was taken from the production calendar, subtracted 20 days of vacation and divided by the number of months. After all, people do not work on vacation, and vacation pay. It turned out

(247-20) / 12 = 18.9 ... days an average employee works per month .

We believe that in full time 8 hours. Here we are faced with the task of understanding how much money we spend on paying employees for an hour of development. In addition to developers, testers, designers and the implementation team are involved in product development. The ratio of their salaries is as follows:
Testers - 50% of the developers' salaries.
Employees of the implementation unit receive as much as the developers.
Designers - 75%.
Developers on average 2.4 hours a day accompany a code, and 5.6 hours a day develop it. Testers - similarly spend 5.6 hours on development. Designers and implementers are engaged all 8 hours a day in their work, preceding and completing development.

For an example, we take as the basis for the salary of Java programmers according to the Superjob.ru portal - 120,000 rubles per month - and compile a costing table for the employee’s labor hours in terms of development hour:

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It is clear that people should sit somewhere (at least on chairs, but it would be nice to put these chairs in an air-conditioned room), work with decent equipment, have good communication channels for working with external applications, servers, teams. Someone should look for employees, someone - to consider their salary, someone - to monitor the office and so on. High qualification of employees entails a certain level of costs for their maintenance and administration. Factors such as “conditions” and social package in the labor market play an important role. All these considerations have led us to include general business and administrative expenses in our methodology. We considered them in fact over the past six months and divided by the number of production personnel, it turned out 20% (relative to the salary of developers).

The development cycle involves the following points. To ensure that the developer works for an hour, the designer should spend about a third of an hour designing the requirements, the tester should work on testing for half an hour, and so on. All this is clearly presented in the table, and the conclusion is obvious from it: an hour of direct development requires an hour of additional costs.

Note that technical writers who prepare documentation receive the same salary as testers.

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The final touch is rounded to 36 and we can, with a clear conscience, write down the formula from the beginning of this publication.

Hour = ZP / 36

The exact determination of the cost of development hours in rubles depends, therefore, on the salary that the developer receives in a particular company. If, for example, according to Superjob.ru (120,000 rubles per month), then the developer’s labor hour will cost the employer 3,342 rubles including VAT.

In conclusion, it should be noted that the cost of development for the customer is certainly higher than the cost. Standards of profitability - the issue is already purely individual.

It will be great if this information is useful not only to us.