Estimating Cumulative Software Cost

A rule of thumb I use in my consulting work is this-- the cost of replicate or replace a piece of software is about:

H * (Y + 1) * $100, 000

Where H is the number of software engineers on a project, and Y is the number of years since the project was initiated.

This is derived from the following assumptions:

1. The number of software engineers on a project scaled linearly from the start of the project until now.
2. The full-loaded annual cost of an average software engineer is $200,000.

Even if the annual cost of an engineer is a little higher or lower, or the staffing arc of the project was not quite linear, this tends to produce results that are on the right order of magnitude.

So if a client asks you to build a competitor to a system that has been around for 10 years, and the competitor employs about 15 software engineers, they asking you to replace a system that cost on the order of $16.5 million. It's unlikely that you be able to match them feature-for-feature for $165,000.