I'm thinking of developing a custom application (SaaS) for one of my businesses. I've never gone down this path and I'm worried about getting in too deep, wasting a bunch of money, then ending up with an failed project (incomplete).

Currently, I'm considering a firm to scope out the requirements. This is an industry specific firm, so they're familiar with needs, value propositions, competitors...etc. They estimated this process to take one week and quoted me $7K.

I'm expecting that to kick out the first version, it will be about $150K...but I'm not sure and really don't have anything concrete to base that estimate on. I just talked to a friend, who was considering a custom payroll application, and once he had his project scoped out, it came in at $1mm. Now, this was also for an entirely US based team. Also, the payroll application he had quoted, was much more extensive than what I have in mind.

Here are some immediate questions:
  1. Does anyone have experience in this area? If so, please share your experience?
  2. How do I contain development costs?
  3. How are development costs determined, if I'm outsourcing outside of the states?
  4. Should I hire a US based PM, or is it common to outsource this role as well?
  5. Am I "crazy?"

In this scenario, it may be important to point out that I have light functional technical skills only...