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Managment

Choose between Time & Materials, Fixed Price, and Dedicated Team

When you need to choose the model of cooperation with an IT-company, it’s worth paying attention to the opportunities offered by this or that type of contract. Here you will learn about all pros and cons and how to choose the right approach.

Software development is not just a process of analysis, architecture creation, design, code writing, and testing. Development starts with choosing a contract type. Most companies rely on long-term cooperation with clients. Ensuring reliable cooperation and flexibility is not an easy task. The most important thing before starting the project is to choose the right business model, specifying the conditions and requirements. Depending on customer requirements and project specifics, there are such models:

  • Time & Materials
  • Fixed Price
  • Dedicated team

Each model has its pros and cons for both parties. And the corresponding variant comes out of the business specifics, the scope of work, and type of project.

Time and Materials

The Time & Materials model means paying for the result based on labor costs. The customer does not pay for the amount of work. He pays for the man-hours spent by the contractor’s team on software development and implementation. T&M shows itself well when it is not possible to determine the full scope of work or the deadlines. 

Cooperating according to the Time & Materials model, it is important for the company to provide quality results at the optimal time. This, in turn, guarantees further successful cooperation.

How it works:

  • The project consists of certain tasks. The team evaluates the tasks separately, so the client can make any additions during the work.
  • The project team evaluates the first task and provides data – how many man-hours it takes to perform it.
  • The cost of the task consists of the number of man-hours multiplied by the developer’s flight(s). If the customer agrees, the team starts to work.
  • The client pays for the work after he sees the result. For example, immediately after the sprint, on a monthly or quarterly basis.

The stages complete in different ways. For example, from internal modifications to a full working prototype/assembly of the software. And in rare cases – to the system version ready for release.  

Benefits of the Time & Materials approach

  • Flexible requirements. The work consists of short sprints and leads to MVP. All functions are properly checked and can be added or removed at any time.
  • Hourly rates. Customers pay the hourly rate set from the start. The client pays for the work upon its completion.
  • Product quality. The team tests and improves the product in a few iterations. This leads to the creation of high-quality mobile applications. 
  • Transparency. The model allows customers to track progress, as the developers present reports on the work done. Often the client takes part in meetings of the company on this project. 

Drawbacks of the Time & Materials approach

  • Indeterminate terms. Any changes in the project may delay the final release and the deadline may be longer.
  • Undefined budget. The price is approximate. The client does not know at the beginning of the project how much money he will spend at the end of the whole project.
  • Resource costs. The customer must manage his own time and desires. The more the customer wants, the more expensive the project will be.
  • Difficult decisions. Market changes dynamically; design or functions implemented at the beginning do not matter at the end of the project. Here, you have to make a decision: change or not.

 Collaborating according to the Time & Materials model, it is important for the company to provide you with quality results at the best time. This, in turn, guarantees further successful cooperation.

Time & Materials model usage 

The model works well for projects with changing requirements. Time & Materials are good for medium- or long-term projects, especially those that use flexible methodologies. This type of contract is welcome when there is no predetermined scope of work and when more flexibility is needed. In this case, the customer relies on the professional level of the contractor.

The Time &Materials model is suitable for projects in the testing, bug elimination, maintenance, or refinement phase. Detailed T&M tasks specify each step. Especially when primary project documents are available and understandable.

T&M allows the team to work on the necessary tasks to make the project successful. Not what is written in the estimate or the TOR. 

This model is appropriate for projects with a high degree of uncertainty. In which the course may change while the development hypothesis is being tested. Also Time & Material is good in projects where it is important to test the result of the previous stage of work. It is convenient to make large projects using this model. They are operated and adapted to the market requirements.

Fixed Price

The Fixed Price model is when the development budget and the exact deadline for delivery of the entire project are approved before the start of work and remain unchanged. Risks for untimely execution of works lie on the contractor. Risks for untimely execution of works lie on the contractor. 

A contract with a fixed price for an hour always contains an accurate estimate of the work. It appears after a detailed analysis of the scope of work and risks in the project. Qualitative assessment of the scope of work depends on the description of requirements for the future product. Such requirements are technical tasks. Developers evaluate these tasks.

Benefits of the Fixed Price approach

  • Strict deadlines. When the customer understands what functions he needs in the application, developers can come to a clear plan and certain deadlines.
  • Predictability. The customer and the contractor discuss and plan everything in advance. It is easy to track the development status of the project. There is no need to allocate additional resources for monitoring.
  • The Fixed Price model is best suited for small projects with limited capabilities and clear requirements. It’s also good for MVPs and projects with limited budgets and time frames.

Drawbacks of the Fixed Price approach

  • Improvements. All modifications that have not been evaluated from the beginning should be subject to an additional agreement and paid separately. The client takes any additional fees as bad, if not critical. Projects may stop for reasons of refinement.
  • Risks of misunderstanding. There is always a risk that misunderstanding can lead to the delivery of a product that does not quite meet the expectations of the customer.
  • The scalability of such projects is minimal and there is a high probability that the project will not continue.
  • Changes in the market. In the future project, it is impossible to make changes simply. It is also difficult to take into account all the changes and the need for all the functions from the specification. 

A Fixed Price model is generally used for small projects. They have strictly limited functionality, which for sure is not changed or supplemented.

Fixed Price model usage 

The Fixed Price model is best suited for smaller projects. These projects have limited capabilities and clear requirements. Mostly, the public sector and pro-government companies like this approach. The model is also well suited for MVP (minimal viable product) and projects with limited budgets and deadlines.

Af course is appropriate for small projects with obvious functionality. They will not change globally in the future (at least for 1 year). According to this model, it makes sense to work if the development time is not more than 1 month.  For example, when a client wants to work with a new partner. To minimize the risks, he launches a small pilot project that will take a month or two to develop.

The Fixed Price model is often used to develop projects such as corporate sites, online stores, and landings.

Dedicated Team

The client receives a separate development team specifically for the project in accordance with the requirements. This model is ideal for long-term cooperation. The whole team is available to the client as long as it is necessary. Besides, this model saves budget when developing long-term projects.

The customer determines the team structure, number of specialists, and their work schedule. Based on these requirements, the customer receives a team for an agreed period of time. At the customer’s request, the company provides the necessary information and help in team building. The customer or a representative of the company that is part of the team can manage the work.

Benefits of the Dedicated Team approach

  • One project. The team focuses on one project. Thus, there is an exception in switching between thematic areas.
  • Control. The customer may perform full control and management of the team and adjust the workload of each of them.  You can include a manager in your team. This will help coordinate the work efficiently and smoothly.
  • Professionalism. Individual approach to the selection of specialists. Ability to select the right specialists by their level of knowledge and experience in a particular field.  Fast input and output of team members.
  • Reduction of costs. A remote group monitors compliance with deadlines. If necessary, it may engage in extra recruitment.

Drawbacks of the Dedicated Team approach

  • Long-term project. A dedicated team usually implements long-term and complex projects. Thus, it is better to use the Fixed Price or Time & Materials model for small projects.
  • There may be a difference in time zones between a customer and a team.
  • Instructions. Working with insufficiently large instructions. A remote team may create a project based on its own preferences, which is not always good. 

Dedicated Team model usage 

The specialized team model is suitable when the client needs long-term partnership. It’s also great if the customer doesn’t have the time or resources to hire and train an internal team. Or if the customer understands that they may need to increase the number of participants.

If you don’t know if you should take a dedicated team, just answer some questions. For example, you want to develop a comprehensive product. Or you are thinking about expanding your business.

A dedicated team is well suited for projects that are looking to grow and expand quickly. And also for companies that are still planning to expand. Appropriate for projects with flexible software development. Perfect for those cases where the customer wants to know the costs in advance. But the requirements and scope of the project often change or are unclear.

An internal team will work on more important, business-oriented tasks. At this time, the dedicated team performs additional work. This model is usually taken for long-term projects with several tasks. DTs can respond more quickly to changing business conditions while maintaining a high level of software quality.

Conclusion

The same features of different models in different cases can be both pros and cons. Both for the contractor and for the customer. There is no definite answer to the question of which model is better. In each particular situation, the answer will be different. 

First of all, you need to take into account the complexity of the project and the time to execute it. And then – choose the type of command and pricing. To choose the right model, you need to talk to the contractor, discuss details, come to a common answer, and make rational decisions.

Each idea deserves special attention. Close communication, discussion of all details will help to create a project that will really solve the tasks of your company. This means it will be effective, popular, and have a perspective for further development.

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