Which Engagement Model Should You Choose When Considering a Software Vendor?

With a focus on the cost-beneficial approaches to software development, businesses became extremely demanding not only about cooperation outcome, but about the best models to achieve the desired product in the most rational way. Meanwhile, IT companies are in a mad scramble to outpace the competition. As a result, what started as a mere cost reduction strategy, has transformed into sophisticated science of how to deliver better quality and marketability at a comparable price.

Choosing the appropriate engagement model for software development is the primary task aimed to align goals around a common outcome and the best suitable pricing model. The decision to choose this or that engagement model can be based on various factors that might be objective like the maturity level of vendor and their track record of success, or subjective like customer’s previous experiences with other service providers.

Either way, the selected model with all its legal and technological aspects should be precisely specified and transparent for both parties. That’s why we suggest a brief overview and discussion of the most popular models of software engagement: Time and Material, Dedicated Team, and Fixed Price.

Time & Material

A cost-effective model where the amount of money you spend corresponds to the amount of work delivered. The client and the vendor usually agree upon an hourly, daily or weekly rate for the allocated project resources. This engagement model is often preferred because it offers flexibility to change requirements on the fly, ability to balance project resources, and spread the workload.

Provided that Time & Material project is accompanied by the experienced and skilled project managers, quality is properly supervised. Progress and the deadlines observance are not neglected. There are good chances of getting the work done in-time, and within the budget.

Choosing Time and Material model usually minimizes the biggest risks of the outsourced projects: software you’ve been delivered fails to satisfy any of your needs, because you lack control over the scope and the budget spending. With Time and Material, bugs are caught on the early stages of the project, cost is thoroughly estimated with the sequence of iterations due to Agile methodology. Furthermore, the client can always make sure that the project meets market needs validating it before it’s too late to change anything.

When to Choose Time & Material Engagement Model:

  • You have constantly evolving or unclear requirements
  • It’s a large project with numerous iterations planned
  • Your developments needs will deviate over the time
  • You appreciate transparency in customer-vendor relationships

Dedicated Team

Engagement model with dedicated team means extension of the client’s team with the offshore, nearshore, or onshore vendors’ specialists, while the other project members are retained on the client’s side. The specialists your firm is supplemented with are supposed to entirely comply with the existing corporate culture, rules, and the best practices of your company. Moreover, this new team takes over your company’s technical resources, tools and methodologies, and should be expected to recognize themselves as an important part of the organization.

This model may have productive variations when it is ‘injected’ with the Time and Material (T&M) elements. Let’s say you are sure that you will definitely need a software engineer of a precise qualification category somewhere down the project progress line, but you are not sure when exactly and for what period. In such a situation, the vendor will be able to provide you with the required resources in the right time and on favourable T&M terms.

Being the simplest approach to outsourcing engagement, it will work well for a long-standing relationship and long-term projects, although it requires vast managerial experience and extensive technology background, largely, on the part of the client’s team.The supplier normally takes a big deal of responsibility above the dedicated team performance with due consideration to motivation aspect. Working out reward programs, making positive work environment, encouraging personal advancement and other similar initiatives will definitely increase the project performance rate.

When to Choose Dedicated Team Engagement Model:

  • When you need more manpower for the in-house development team
  • When you are fond of cross-border knowledge sharing and bringing in outside minds
  • When you have a fair vision of how your project should evolve and have enough time and resources to keep abreast of all the management aspects

Fixed Price

Fixing the price is about fixing the scope, project requirements, as well as deadlines. This model will never work without thorough initial planning, estimation, and analysis sessions. The more planning you do, the better the outcome.

Why is the planning stage so important? Success of the fixed price project is directly proportional to the success of this initial phase. The slightest change in the scope can turn into endless negotiations between the parties with negative impact on product’s time-to-market. The main benefit of selecting this particular engagement model is predefined and fixed project’s budget, which means you know exactly how much you are going to spend on your product, but the cost may vary widely because of the smallest changes in the scope.

To have a better control over a bigger project, the engagement model might be slightly transformed with milestones & deliverables approach. A client is billed as the agreed milestones are reached and deliverables are in place. After that, another stage with its own milestones and deliverables will begin. With minimized risks, you’ll have better vision of project needs and terms. On top of that, you’ll be able to more clearly define the next set of deliverables.

For the majority of successful fixed price projects, discovery phase serves as the starting point. Determining a desired outcome, understanding the requirements and the scope should ideally be further transformed into Minimum Viable Product (MVP). Under such scenario, discovering the project needs, is a great remedy for unrealistic expectations.

When to Choose Fixed Price Engagement Model:

  • Requirements are clear, well defined and unlikely to change
  • You deal with small or medium project which won’t last for more than few months
  • You used to outsource similar projects before

Whatever engagement model you are considering, look at the development project in a long perspective. Even if you are sure it will take no more than two weeks, the possible outcome might bring new opportunities. In fact, it is the reputable customer software development company and win-win attitude of the both parties that are the biggest success factors under all the engagement conditions.

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