This cost includes the salary component and all other costs associated with employee. Beyond salary, the organization may offer incentives and reimbursements to employee, based on grade and position in the organization. This cost of the employees is termed as ‘cost tot eh company’ when the employee is in service. Cost to the company varies by position and experience. It is therefore necessary to estimate the cost to the company by class of personnel required to deliver the software. It is safe to assume three classes of employees, namely, manager, analyst, and programmer. Then we have measures of allocating total efforts in percentage to various phases in the development life cycle. Using this measure. MAN MOTH EFFORT (MME) is them multiplied by ‘cost to the company’ (C) to arrive at the cost. In the life cycle phase, analysis and design is a techno-managerial requirement. Coding and testing is the programmer’s role and integration, system testing and implementation is a project management analyst’s role. These are board allocation of phases to different kind of employees. Some overlap of role is possible however, for estimation purpose man-month effort in each phase should be multiplied by ‘cost to the company’ in that category.

If the proposed software solution requires purchase of specific hardware and software, then the organization has two options: either charge it to the customer or take it as cost to be borne by the company for amortizing on various software to be produced in the, say, next two years. In that case, a certain percentage of the total cost of hardware and software will be added to the software cost.

This is a significant component in the software cost. These costs are incurred during the life cycle phases through visits, telephone, tale-or video-conferencing, hotel stay and so on. The best estimate is possible by forecasting the number of visits, number of days of hotel stay, number of telephone calls etc. It is better to estimate this at the project level.

As a result of continuous changes in tools and technologies, very often manpower may have to be trained on new technology developments, or they may need to upgrade their knowledge tot eh latest version of tools and technology.

In may software project, the organization will prefer to sub-contact or outsource some part oof development as the cost benefits of outsourcing the development is favourable, This cost, as per contract terms with the sub-contractor, is then added to the software cost.

Most organization have marketing as a key function, managed through groups of persons in the software development group and led by very senior management. Marketing costs have two components, one direct and the other indirect, which has to be added as a percentage of marketing overheads. The direct portion includes all actual costs identifiable to the customer incurred for obtaining the business. Over and above this direct cost as a certain percentage of marketing overheads will be added as standard overhead allocation to the software cost.

A percentage of the total administration cost of the organization will be allocated to the project. This can be estimated as a percentage of software cost computed so far. This cost includes the cost of finance, HR, conveyance, rent miscellaneous purchases, entertainment and so on.

The cost components discussed so far have to be considered. They could be software and project specific to be allocated entirely, or be organization specific, to be allocated to the project on a percentage basis.

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