Averting bankruptcies among the software development houses in Lahore, Pakistan

Pakistan, as the 4th largest technological market globally, is home to over 2000 registered software development houses. However, the industry is not without its challenges, and hundreds of these houses close yearly owing to insolvency, and even more crop up. To understand the financial difficulties these houses face, a sample of 20 small-size and 20 medium-sized software houses has been taken from the hundreds in Arfa Software Technology Park in Lahore, Pakistan. Financial Blueprints of 2 projects per house per year for five years, i.e., 2018-2022, have been obtained. These case studies have been contrasted with those written and published in the developed world. It is found that there is a dearth of costing and pricing mechanisms in software-related projects. This results in under/over-costing the cost and pricing of the projects, which is a leading cause of financial bankruptcy for most software houses. It is proposed that activity-based costing, as the costing technique, and competitive pricing, as the pricing mechanism, may be adopted as the best practice in the software development industry. These solutions, if implemented, could significantly reduce the risk of financial bankruptcy among software houses, potentially transforming the industry's financial landscape.