Fixed-Price, Time and Materials or Dedicated teams?
What is the right model for me?
Where do you start if you want to find the right outsourcing vendor for your business or project? While browsing through all the different vendors, one of the first things to remember is the business model utilized. Not every model will fit your business or project. That is why, in this article, we will explain the three different models to help you find your match.
Fixed-price
A Fixed-price cooperation model works just as it sounds. It is a contract in which a provider is accountable for completing the project for a predetermined amount. With a ‘’set in stone’’ deadline for when the client is ‘’guaranteed’’ to receive a ready product, it feels like a safe option. It does indeed make a practical choice when requirements, specifications, and rates are highly predictable. For a Fixed-price cooperation to be successful, a client must be able to share their vision of the product. Not only does the client has a communication responsibility, the vendor is responsible for regular project management to keep the client updated. All this together makes this model best suited for small projects with predefined features and little risk of things changing.
- Benefits
- Predictability: Using fixed prices will give you exact data. Since you will know exactly when to expect what and at what expense, you can plan ahead. The risk of funding loss is also smaller since delivery of a product is ‘’guaranteed’’.
- Transparency: Working with a fixed prices model will mean everything’s discussed and planned before signing off on a project. With everything being predetermined, the vendor can ensure to stay compliant with the scope and protect margins so that you won’t be left with any surprises.
- Little management: Since you are outsourcing the project, a project manager will keep you updated throughout the process. Working with a project manager will save your own staff time and capacity.
- Disadvantages
- Flexibility: Everything needs to be put in scope, and the execution is planned beforehand. Everything needs to be predetermined. That is why it can take quite some time before you can start with a project. Once you have begone, initiating emergent changes will still be your responsibility. This also applies to changes that are beyond the vendor’s competence.
- Accountability: Since you are not involved with every bit of detail in the process. You are in the dark about certain parts of the project. This can make it hard to manage risks.
Time and Materials
In Time and Material, rather than paying a fixed sum right at the start, you pay the software team for the work hours and all materials that are put into a project. When you cannot accurately estimate how much the project will cost or how long it will take to complete, Time and Material might be for you. Since there is no set price or rigid deadlines, the team will have the flexibility and opportunity to adjust requirements, shift directions, replace features, and involve users in getting the product. This model is best suited for longer-term projects where the scope is not yet fully known.
- Benefits
- Flexibility: Working with a Time and Material cooperation model allows you to make changes during the project implementation. You can start a project when you only have a general goal but have not figured out how to reach this. Working with Time and Material leaves room for you to make decisions and evolve your strategy. You can modify the workload, revise designs and change the focus and features.
- Staying relevant: With an ever-changing market, the need to adapt is higher than ever. The flexibility you gain with Time and Material allows you to adjust when needed. This way you can stay ahead of the competition.
- Scalability: scaling up and down is made very easy. You can scale up just before a product’s launch or scale down when budgets are tight.
- Low budget control: Flexibility can result in overambitious plans or a lost sense of priority. Upscaling can be so easy that projects can spiral into bigger things going way over the initial budget.
- Involvement: Not only do you need to have a deep understanding of the project so that you can make sure that the team is delivering toward the approved scope and within the correct amount of hours. You also need to be on top of your communication. Even though time frames of the final product are somewhat blurry, due to the uncertain scope of the project, you still want to achieve a high-quality product. To ensure a good end result continuous contact with the vendor is necessary.
Disadvantages
Dedicated teams
With the dedicated team model, you acquire access to developers who will work directly for you. The dedicated team cooperation model generally works with monthly payments based on team size, including labour costs and fixed service costs or a margin. It is used for long-term projects where requirements are unclear and vary with changes in the scope. It makes for a suitable solution when you cannot find certain skills or expertise or when you are dealing with a staffing shortage. They can perform high-quality, unique, and specific projects. Another option is to connect your core team to your dedicated remote team. This way, they can expand the core team as remote colleagues.
- Benefits
- Lower costs: When hiring a dedicated team, you outsource your recruitment. You will not only gain access to a pool of talented developers, but you will also save on the laborious and time-consuming task of recruitment. Some vendors also provide HR services. This is another area where economization can be made.
- Optimize: When developers work on a project for a more extended period, they will become more familiar and involved. Becoming more acquitted with a project and client enables a developer to ensure the best results. The long-term nature of the model allows the reconfiguring of teams at each stage depending on requirements and it forces the client to focus. Working with a dedicated team asks for effective planning and regularly evaluating the team member’s strengths and weaknesses and work process. Close cooperation gives control over the project.
- Ongoing development: Like with Time and Material, the flexibility you gain with dedicated teams allows you to adapt when needed. Not only is it easy to upscale a team, you can also gain specific technical skills. This way, you can enhance the foundation of your product and stay ahead of the competition. You also literally continue your development all day long. When working with teams in different time zones, one team can pick up where the others left off.
Disadvantages - Capacity: Since hiring a dedicated team means that you also need to manage this team. It will take time to communicate correctly, and it doesn’t make it a suitable model for short-term projects.
- Time expenditure: Selecting a team that can achieve the project’s goals can be a long process, and the client has to be involved in hiring team members.
Conclusion?
With the growing amount of outsourcing vendors, more complicated business patterns and options arise. To decide which vendor to work with, it is essential to know your own business. Vendors and cooperation models that worked well for a particular organization may not necessarily be your best choice. Once you have weighed all the strengths and weaknesses of each contract type, you can decide which model works best before diving into the plethora of vendors. Once you have differentiated the model, finding the right partner becomes easier.
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Lennaert Groen
🇳🇱 Co-Owner SharpMinds
“I'd be delighted to tell you more about our approach!”