Financial Risks in Software Projects: Scope Definition

Your company needs a new software solution to solve a specific problem and is searching for a development team. However, when reaching out to potential vendors, you realize you don’t yet have all the information they require for a coherent and financially viable scope definition. Still, you want to hire them precisely to help you find ways to develop what doesn’t yet exist, in order to solve challenges that currently have no solution. With such an expensive project on the table, how can you ensure delivery quality and reduce financial risks throughout the development process?

This is one of the major challenges in scope definition, since solutions are often discovered or built throughout the course of a software project. That’s why working with an open scope is common—but it also typically leads to problems with deadlines and unexpected costs.

To help you avoid these kinds of financial risks in software projects, we’ve prepared a three-part series of articles on the topic. This week, we’re starting with this one—on the financial risks involved in scope definition. Next, we’ll talk about the risks related to software quality, and finally, we’ll cover important information about total cost of ownership.

Detailed Software Planning and Modeling is Expensive and Uncertain

Due to the uncertainties of defining scope at the beginning of a project, the last two generations of developers have dedicated themselves to creating extremely detailed methods for planning the software development process—such as Structured Analysis and the Unified Process.

Both were created to enable high-quality software construction based on the initial scope, anticipating potential issues and avoiding surprises during development. The idea is to create models that guide the development process through every phase of the project—covering requirements, user needs, technical aspects, testing, and deployment.

While these methodologies are excellent in terms of detail and thorough planning, they’re unable to predict all development variables. So when something unexpected occurs (which it almost always does), the entire project can be compromised. As a result, all the early work on requirement gathering, planning, and detailed modeling becomes dysfunctional!

Large Projects Create Greater Uncertainty in Scope Definition

The bigger the project, the greater the risk of having to redo everything if it’s not approved or if failures arise in the final stages. Even if every detail and variable is precisely calculated in the early phases, the chances of incurring unexpected costs later on are very high.

For this reason, the safest approach is to break any large project down into several smaller, individual projects. Instead of dividing the project into phases that cover the whole and presenting those phases to the client, the idea is to work on different parts of the software as separate mini-projects. Each part can then be delivered in shorter time frames—fully developed, tested, and functional.

Basing Scope Definition on Project Breakdown Reduces Risk

Imagine breaking the total cost of a large project into smaller chunks, paid with each functional software delivery. If a five-month project is divided into ten parts, for example, after just two weeks you’d receive a working deliverable, having paid only one-tenth of the total cost.

At that point, you’d likely evaluate what was delivered and might want to make changes. Since it’s a small portion of the project, it will be easier and cheaper to implement changes—and your team will learn your preferences for future iterations. The result: with each delivery, the software becomes more aligned with your expectations and increases in quality.

That’s a far cry from the scenario where a client spends months reviewing theoretical progress, only to realize at the end of the development cycle that the finished software isn’t quite what they had in mind! The cost and time needed for adjustments in that case are incomparable to those in the “project breakdown” approach.

So, when hiring a development team and defining the scope of your software project, aim to negotiate for small, functional deliveries. Unexpected issues will still arise, but you’ll definitely save time and money—and in the end, you’ll have a much higher-quality product!

By Joana Kerr