Pros and Cons of IT Outsourcing
Thursday, 19 December 2019
Have you already chosen a company to develop your future product? Excellent. However, in the negotiation process, you can be offered several cooperation models to choose from. Such models can vary from company to company. Some even develop their own ones. However, there exist two models used by everybody all the time, i.e. Fixed Price and Time & Materials. In the article, we will tell you about these generally accepted models and the impact they have, as well as other models used by our company besides these ones.
At first, let us analyze Fixed Price, as it seems more simple and understandable. In addition, people often name it as “pay for the result.” This model offers the development of a turnkey product. Specialists of the development company take all the work on the project on themselves, i.e. starting from requirements analysis to product release.
When choosing this model, it is extremely important that the client has all the documentation necessary for the project, i. e. a clearly formulated idea and technical specification, instructions, guidelines and a work plan. Do not rush and abandon this model if you do not have any of the above but an idea. Almost all IT companies will help you to draw up everything for a relatively small additional fee. There is even no need to contact the same company you plan to develop for. However, as practice shows, it is better to entrust everything in one hand, i.e. the team that has drawn up such documents for you will already know all the requirements and details. This will significantly save the time on preparatory work and implementation in the project.
Fixed Price model has a large number of advantages. First, the development cost is fixed, i.e. it does not matter how much time and resources the development company spends, you pay exactly as much as was agreed “from the get go”. Secondly, you always know exactly what you get in the outcome, i.e. what was described in the specification you provided. The third important point is the timing. The development process and the deadline are discussed in advance and documented in the contract, so the deadlines will not be broken.
Fixed Price also has its drawbacks. For example, it is considered the most not flexible model. All working moments are discussed and recorded before the start of the project. It will be impossible to change the conditions or the desired functionality later, despite the circumstances.
Fixed Price fits perfectly into the framework of small projects, i.e. in a short time, there are fewer chances that some changes will be required. In addition, the model is perfect for those customers who do not want to go into the technical details and manage the development process. The team working on your project will definitely have a manager who can control and regulate all the questions independently, and answer them if necessary.
The second most common model is Time and Materials, also known as “payment for time and resources used”, works the following way: the development company offers the client a dedicated specialist, or a separate team (depending on the scale of the project), and the client pays for the time spent on the project, and other resources as well.
Hourly rates for specialists of different levels are agreed upon before starting work on the project. At the end of each reporting period, the development company issues an invoice to the client based on the hours worked by the specialists and the resources expended.
To start work on such a model, it is not necessary to have a clearly defined plan and specification. Only a goal is needed, i.e. the plan is most often formed in the course of work.
However, it is necessary to determine technical requirements, the number of specialists, their approximate load and the launch date in advance.
The main advantage of this model is flexibility. Plans and requirements for the final product can be quickly made at any time. Another important positive aspect is transparency. If you work with Time and Materials, you will definitely be given the opportunity to interview each candidate, you will be able to constantly communicate with specialists who work on your project, receive reports on the work done and see the result at all stages.
The main disadvantage of this model is the unpredictability of the budget. It all depends on how often the client makes changes, and on the complexity of the tasks that will appear in connection with these changes.
This model is best suited for customers interested in developing large products. As a rule, it takes a while to develop them, during this time the client may want to change something, for example, add functionality, or redo the interface. The client who chooses such a model should understand technical issues, or have such a person by his side who does. It is also important to remember that if you choose this model, most likely you will have to spend some of your time managing the team and monitoring the development process.
In addition to these models, we have been successfully practicing two more for a long time. They are hybrid and tariff.
The hybrid model is a mixture of Fixed Price and Time & Materials. A dedicated team still works on the project, only we evaluate each sprint as a separate project here. At the end of each sprint, the result of the work performed is shown to the client, after which decisions are made on further actions to improve the product.
According to this model of cooperation, there are two possible options for evaluating a project cost:
This is perhaps the only cooperation model where we have not found any minuses. However, it has a lot of advantages. The first one is flexibility. You can also make changes at any stage of the project. Secondly, this model is perhaps the most transparent. It will be easier to control budgets than with Time and Materials, as each sprint will be evaluated separately. At the end of each sprint, you will receive an assessment and a progress report. You will always see intermediate versions of your product, all terms will be agreed upon in advance, documented by the contract, and, therefore, met.
This model is most suitable for long-term projects, especially if the client wants to work according to the Scrum methodology.
We use such model mostly in terms of prepaid support. The client deposits a certain amount agreed upon to the company’s account, thus creating account balance. As the client involves a specialist, the amount corresponding to the hourly rate of the specialist is withdrawn from the balance. When the amount on the balance approaches zero, we notify the client, and they can replenish the balance and continue to engage a specialist, or suspend the provision of the service.
Among the advantages we should mention the following, i.e. full control over the budget and the ability to involve any necessary specialist for product support, at any time and for any number of hours (in case of this model, it’s always a part-time engagement).
If we talk about the minuses, then everything is subjective, i.e. there are customers who do not really like to give down payments. But if this is not the first time you deal with the company, and the experience is positive, then this will not cause you any inconvenience.
This cooperation model is very suitable for the clients who plan to engage a specialist of the development company only for product technical support.
In conclusion, we would like to mention that we relied on the experience of our company when describing the above-mentioned cooperation models. The information may differ from generally accepted standards, or the standards of other companies. After all, we strive to share only what has been successfully tested by many years of our experience.
Have a fruitful cooperation!