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A CTO’s Guide to Reducing Software Development Costs in 2024   

Discover data-driven strategies for reducing software development costs in 2024. Maximize efficiency, minimize expenses, and thrive using Hatica's advanced analytics. 
Reducing Software Development Costs With Hatica

The tech ecosystem has gone through a major upheaval in the last three years, thanks to a global pandemic, rise in uneven engineering demands, downsizing, sustainability concerns, the great resignation, and advent of GenAI for software development. 

In these uncertain times, CTOs, and CIOs have been so focused on business resilience, and a faster time to market, they had fewer opportunities to calibrate the exponential rise in software development costs. 

The result? Software development costs are taking upto 63% of a project’s budget, turning into a cost center from a profit center. Engineering teams too are facing the heat as their ability to innovate shrinks with rising technology debts. 

2024’s CTO will not just be a technology leader, but a business executive too, which means taking a data-driven approach to costs, and diverting your spend towards the future, and not just taking care of legacy systems, and past projects. 

Now, the fundamental question here is: how to keep the budget flat without decelerating the software delivery process. 

To which Marc Tanowitz says: The easiest way to find dollars to invest is to identify hidden costs that can be reduced without troubling the bottom line. 

A Look At The TCO of Software Development Teams 

Understanding the true cost of a software development team goes beyond just FTE wages or cost of acquiring new techstack (cloud provisioning, SaaS buckets). 

The Total Cost of Ownership (TCO) factors in everything from visible costs that are readily apparent and directly tied to the development process itself, the invisible or hidden costs that are difficult to track but create a big dent on your bottom line, and stem from rework, rising technical debt, and inefficient workflows.

Here’s a look at the visible, and direct costs of software development: 

visible, and direct costs of software development

Most of these direct costs can be optimized by being truly agile, automation, deploying CI/CD pipelines for development, and leveraging open source tools to cut license costs. 

However, they're just the tip of the iceberg. The more prominent hidden costs are difficult to quantify, and lack a data-driven approach to mitigate them. 

Here is a nuanced approach to reducing the hidden and invisible costs of development tormenting engineering teams. But first let’s see what really constitutes these invisible costs:  

The Hidden Costs of Software Development 

While it’s easier to quantify departmental spendings like FTE expenditure, salaries, software licenses, cloud cost; the inefficiencies in the SDLC process lack a clear price tag, they are often overlooked, and are definitely more than what an engineering team bargained for. 

Here are a few of these “hidden” costs injuring your engineering sustainability: 

1. Code Churn, Rework, and Poor Software Quality   

The DORA team assessed the cost of rework, and unaccounted code churn on engineering teams. Fixing existing poor quality code is setting a medium engineering team back  

$4.7M a year, while for large engineering teams, the rework costs run as high as $93.7M. 

Code churn is often seen as expected, and healthy. However, once a rework above 20% is definitely a red flag for your engineering costs. 

High rework costs is a clear indication of low software quality, poor class design, incomplete code reviews, unstable codebase, high technical debt, and a dent on customer experience. 

2. Technical Debt

 CTOs are already allocating their 10-20% of the new project budget towards technical debt–  an outcome of shortcuts and tradeoffs development teams make to meet deadlines. 

Band-aid code solutions to deliver faster introduce long-term complexities, and can be a massive roadblock to engineering productivity. As of now, your developers are spending  17.3 hours per week dealing with tech debt, closing to north of $85B in annual losses. And we haven’t started quantifying the opportunity cost yet! 

Legacy infrastructure is again about bleeding money here. Either CTOs start hiring for COBOL developers at average salary, or do away with aging infrastructure completely (spoiler alert: both are nearly impossible). 

High technical debt, and unmanageable legacy systems means teams are consistently grappling with high-risk code, often resulting in frequent rework and downtime, especially when the release date is around the corner. It’s a vicious cycle for CTOs to be in. 

3. Outdated Cost Capitalization, and Reporting

In 2021, 33% of engineering teams automated between 50% to 75% of their workflows. However, the figure is highly dismal when it comes to automating software cost capitalization, the process is mostly manual, usually undertaken by engineering managers, and finance teams to calculate FTE efforts, and resource breakdown, and is a sheer wastage of engineering resources. 

CTOs, and CFOs are increasingly at a crossroads because of the lack of a single source of truth in collating, analyzing, and verifying engineering data. Moreover, the ambiguity in GAAP rules, and Guesswork, anecdotal evidence, and conformity bias in feeding datasets makes the entire cost capitalization process less feasible, and more burdensome; some business execs even seem to skip the practice despite its long term impacts on financial sustainability. 

4. Low Planning Accuracy 

The industry average for planning accuracy is around 50%. That means engineering teams only deliver half of what they plan for in an interaction. Engineering teams across verticals face the heat of lack of accuracy in forecasting project delivery. Most CTOs we know struggle to know the answers for: 

  • What is the timeline for this release?
  • Can we prioritize Feature A over B?

Answering these questions becomes complex as scope creep, gold plating requirements, and a broken sprint process fog project delivery workflows, and timelines. A lack of objective, data-driven project delivery projection means resource misallocation, bottlenecks in the delivery process, communication breakdown between project owners, and engineering teams, a dent on operational integrity, and overall high development costs. 

5. SaaS Sprawl

In 2023, CTOs lost $750 million to software features that were purchased, but never used by their engineering team. 

Owing to the rise of complex engineering systems, an average sized team is using around 70-100 digital tools. We haven’t yet started counting the additional burden of cloud services, and sprawl where your team might keep running the tab due to ShadowIT, decentralized decision-making, and lack of visibility into engineering processes. There are enough horror stories of companies facing massive budget overruns because of one small mistake with cloud provisioning. 

Redundant apps cost too much to businesses, and even overwhelming the entire engineering team, and weighing down heavily on overall data security, thanks to Shadow IT again. 

SaaS sprawl becomes uncontrollable, chaotic, and financially draining when executives lack a 360 degree view of their engineering resources, and usage, and that’s how redundant services begin to crop up. 

Besides these obvious costs associated with a broken delivery process, the most coveted factor that stays hidden and yet influences the overall costs is low developer productivity

Cost Storm Alert ⚠️: Low Engineering Productivity 

Today, businesses are fighting wars on too many fronts: high competition, security breaches, trade regulations, and economic uncertainty. But here's the deal: how these companies use their developers will take center stage in determining their future success. As per Stripe, high engineering productivity can add upto $3T in global GDP in the next five years. In the same survey, CTOs, and engineering leaders have agreed on investing in developers help them: 

  • Accelerate time to market
  • Improve product differentiation

This is an opportunity cost that most CTOs often overlook when it comes to improving their bottom line, and cutting down on the financial drain. 

Your developers bind the engineering systems together. Investment in their overall well-being, and developer experience go a long way in fighting high software development costs. 

A Prerequisite to Combat Skyrocketing Development Costs: High Work Visibility 

Reducing software development costs isn’t a sprint; but a marathon that will ask from you to drill deeper into broken parts of engineering processes. But how? Most engineering evangelists are silent about it.

It is simple: You cannot build a cost saving strategy without understanding what’s igniting these expenses in the first place. It’s about attaining higher visibility into engineering workflows. 

360 degree visualization of both health, and depth of engineering systems is your foundation of data-driven decision making, improved bottom line, and an optimized TCO. 

Reduce Software Development Costs With Hatica 

Despite knowing that engineering costs money, many VPE, and CTOs struggle to put a concrete dollar figure on the total budget for their software development projects. I've spoken with dozens of them, and for many, this was the first time they actually saw a grand total cost breakdown.

Like I always say: 

Not knowing exact dollar figures that go into your engineering is like running a business with one eye closed. 

This lack of visibility into hidden costs often leads to underestimating the true financial needs of software development projects. And precisely here Hatica comes into the picture. Hatica’s engineering management platform integrates directly with your engineering stack to pull data around 130+ engineering metrics, and enable work visibility to assess engineering health. 

1. Rightsizing With Data-Informed Resource Allocation

Rightsizing is the approach CTOs take to minimize unused resource costs. The biggest challenge to adopting a rightsizing strategy is lack of actionable data. It will be tough to allocate resources if you can't clearly conceptualize your resource and task performance against the goals and limits set. 

Hatica-led visibility allows engineering teams to understand developmental bottlenecks, emulate success patterns, and even undergo process reengineering for continuous improvement, and overall cost reduction. 

Effective resource allocation, and management save your bottom line from draining further. With Hatica, align engineering efforts with business priorities. Visualize how the team is moving the business forward, and the real ROI of current engineering investments. 

Data-Informed Resource Allocation With Hatica

This way, executives have more clarity on where engineers are spending their time: project roadmap, bugs, or in keeping the lights on. Hatica helps you tie these efforts with the value created by every spent dollar. 

Hatica's resource allocation dashboard

Effortlessly make a case for sustainable adjustments to your headcount – whether increase, decrease, or shifting from projects– and map engineering effort with critical epics, and issues. 

Greater visibility into resource allocation essentially translates into improved capacity forecasting, business alignment, and wise spending. 

2. Automated Cost Capitalization

Automate your cost capitalization process with Hatica, and save hundreds of man hours, and eventually millions of dollars. 

Hatica generates accounting-ready, and auditable capitalization reports for engineering teams so C-sec has more freedom to plan sound budgets that effectively ties to the big picture. 

cost capitalization process with Hatica

Customizable reports for various projects, teams, and timeframes means you get a comprehensive 360-degree breakdown of opex and capex engineering efforts.

This synchronization of financial goals with the engineering pipeline will empower engineering teams to bring down their development costs, and capitalize expenses in the long run.  

Read more about automating software capitalization with Hatica

3. PR Workflow Analysis To Combat Rework, and Technical Debt 

Hatica offers data-driven insights into the engineering team’s pull request activity, including review load, and PRs merged without review. 

Filter the PR count based on projects to reflect on progress made, and if they are on track to get delivered as per deadline.  

PR workflow analysis with Hatica

Effective code reviews through identifying team involvement, and PR pickup, and review time too act as a stopgap for cost outflows by reducing the burden of fixing bad code at later stages of the development cycle. Healthy code reviews, a constant check on merging PRs only after review, and an eye for pickup time also translate into lower cycle time, and faster software delivery. 

Take a look at how Hatica can support teams in cutting down cycle time for faster, better, and cost-effective delivery, without a compromise on quality.

Similarly, taking a look at the leading metric like code churn enable your team to forecast additional stumbling blocks like technical debt, high refactoring requirements, communication breakdown, poor documentation, ageing infrastructure, or poor class design present further in the development pipeline.  

Standardize efficiency, tackle technical debt, boost software development speed, and eliminate bottlenecks in your SDLC process, all with a single engineering management platform

Rooting out these inefficiencies bring CTOs one step closer to the ultimate goal: reduce software development costs without compromising on quality. 

4. Robust Project Delivery Management 

Keeping your software project delivery on track has a direct impact on overall TCO. Software projects have a budget overrun of north of 66%, owing to higher scope creep, flawed project execution, and lack of predictability, and accuracy in forecasting project deliveries. 

With Hatica’s metric-driven project delivery dashboard, objectively understand project trade-offs of prioritizing one deliverable over other, expose blockers, minimize delivery risks, and communicate timelines that stick. 

Improve planning accuracy with Hatica

A full-spectrum view of project portfolio will help your team deliver on at-priority issues, map engineering investments with issue completion over the course of release, keep a pulse on the team's scope of work and if they can accommodate any more “new” requests. 

Hatica’s metric-driven project delivery dashboard

Moreover, a robust project delivery management system is your copilot to ensure accurate scenario planning especially when you are at the verge of streamlining FTE costs. 

Hatica empowers to set better expectations with stakeholders, bridge trust deficit, and have a holistic understanding of your team’s delivery capabilities. 

Use Hatica’s work analytics to make your executive check-ins objective, meaningful, and data-informed, and thus, reduce software development costs in the long run. 

Fix Your High TCO With Hatica  

As engineering teams grow in size, and complexity, maintaining sustainable profits and growth is going to be very difficult for CTOs. Your software footprint, and development costs will keep on expanding haphazardly if you are not smart about resource allocation, project delivery, and presence of low quality code. 

A long term perspective is needed to build a cost cutting strategy for engineering teams. Decisions taken for short term savings too can make the entire shift cost-intensive, and demand huge developer resources: all antithetical to principles of a sustainable, and growth-centric bottom line. 

The more we recognize the value created by each dollar spent, the closer we are to fiscal prudence, and a technology-led business growth. ​​As Stewart Buchanan, from Gartner’s CIO team says: The challenge isn’t cost management, but realizing value from cost.

All these measures to bring financial clarity into your development pipeline is only possible if engineering teams have 360 degree workflow visibility. Hatica enables your engineering managers to handle all of that with a single-pane view

We have seen our customers reduce their software bills by as much as 30% using engineering analytics, and data-driven decision making. 

What are you waiting for? Grab a free demo today, and know how Hatica can help you cut down software development costs. 

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Table of Contents
  • A Look At The TCO of Software Development Teams 
  • The Hidden Costs of Software Development 
  • 1. Code Churn, Rework, and Poor Software Quality   
  • 2. Technical Debt
  • 3. Outdated Cost Capitalization, and Reporting
  • 4. Low Planning Accuracy 
  • 5. SaaS Sprawl
  • Cost Storm Alert ⚠️: Low Engineering Productivity 
  • A Prerequisite to Combat Skyrocketing Development Costs: High Work Visibility 
  • Reduce Software Development Costs With Hatica 
  • 1. Rightsizing With Data-Informed Resource Allocation
  • 2. Automated Cost Capitalization
  • 3. PR Workflow Analysis To Combat Rework, and Technical Debt 
  • 4. Robust Project Delivery Management 
  • Fix Your High TCO With Hatica  

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Overview dashboard from Hatica