Cooperation Models In IT Comparison

Taras Tymoshchuck
Nov 6 · 5 min read

Cooperation Models In IT Comparison

Recently, outsourcing services has grown from a fairly simple concept to a complex set of different options and models. World practice has developed in this issue three basic pricing models, which we will consider below and focus our attention in particular on the IT sphere, where they are particularly widely used.

There is a dilemma of choosing one of the available pricing options for software development. Very often the customer chooses how to cooperate, and it is important enough for him to understand how to build relationships with the contractor.

A proper planning phase is important. It’s not only about thinking ahead but also about being on the same wave with your outsourcing provider every day and benefiting from their expertise, as opposed to viewing outsourcing merely as an easy way to offload commodity work. You need to select the proper engagement model that is transparent to both parties and provides strong governance for all aspects of the relationship.

Below we will consider each option, give recommendations on the choice with a description of the pros and cons of each of them.

In Western practice decided to distinguish the following pricing models:

Fixed price, Dedicated team, Time & Material

Fixed Price

From the name you can guess that this option involves the payment of a fixed amount of money for a certain amount of work.

The fixed-price model is ideal for small and medium-sized projects, where requirements, specifications, and schedules can be clearly identified before project development begins. If the client cares more about the results that will be achieved, this model is more than appropriate. After a customer request, the service provider analyzes the scope and complexity of the project, provides a project implementation schedule and a fixed budget for the full development of the product for customer approval.

Advantages:

• good for small and medium projects;

• clear requirements and clearly defined goals and milestones;

• low risk for customers, because of the responsibility for successful completion of the project lies with the contractor;

• relatively little customer control is required;

• fixed price based on a project estimate prior before the start of the project;

• assurances that the project will be completed within the agreed budget and deadlines;

• the performer is very motivated to be efficient and productive.

Disadvantages:

• it takes time and resources to fully and expertly determine the requirements, results and eligibility criteria;

• lack of control over the project the implementation process, staff participation and material costs;

• developers rarely communicate directly with customers and cannot discuss every problem, and using the Waterfall makes it even harder to make changes after the approval of each development stage;

• there can be problems with the quality of the final product since the project is managed only by the contractor;

  • the customer must pay separately for any significant deviations from the original requirements of the project.

Dedicated Team

Dedicated Team is a business model in which both parties mutually agree with the workload and project requirements with an indication of the required amount of time, and the outsourcing company provides IT-specialists who meet the requirements of the customer, who fully concentrate on his projects. The customer has full management control over the project and the team, and the performer does the function of recruiting staff and administrative support.

Advantages:

• full control over the selection, motivation and management of the dedicated team members;

• daily communication and management using web tools;

• flexible approach, fully predictable costs, and budgetary control;

• workload and volume are not fixed, and change requests can be made at any time;

• a loyal team of external personnel, with which the client can establish the same working relationships and rules as with the core staff;

• when individual team members work with the client for some time, they have a deep understanding of the client’s expectations and clearly see the goal for success;

• team cohesion and stability.

Disadvantages:

• low efficiency for short-term projects;

• more expensive models than Time & Material and Fixed Price;

• selection of team members may take some time and postpone the start of the project, while during development when using the Time & Material model, work may begin in the near future;

• dedicated team members have fewer opportunities to learn new techniques outside their field in the project;

• the client must play an active role in communication and negotiations and invest a lot of time in management.

Time and material (T&M)

What to do if all the details of the project are not known in advance and it is impossible to predict all the details? What to do if there is no complete vision of the final product and its implementation features and if it is not possible to divide it into several smaller stages. Here you will come to the aid of the model T&M, which allows you to control the development progress and the cost of the final product more. In some cases, this option may be more efficient than the regular fixed price model. One of the biggest advantages of the way of cooperation is the prioritization of tasks for development projects.

Advantages:

• the customer pays per hour regardless of the duration of the software development project;

• if the client wants to develop any additional functionality, the contractor is paid only for the time spent by his staff on a specific set of tasks;

• the main advantage for customers is that using the Time and Materials model, their changing requirements easily influence and correct the workflow of the contractor;

• flexibility with the Time and Materials model is unlimited;

• using this model, the client can be sure that he receives a high-quality and proven product.

Disadvantages:

• there is a risk of loss of profits by the developer due to the establishment of prices below the average market rate;

• some customers may request discounts at the hourly rate of the developer;

• for the customer, the contractor’s lure may be the temptation to increase the estimated software development time;

• the absence of strictly defined terms or guarantees in the completion of the project;

• budget estimates can be different from the final cost and be less controlled.

It is up to you to decide which cooperation model you choose; everything will depend mainly on the type of project and the predictability of time and costs for this project. For short-term development with a clear description of the functionality and the concept of the finished product, the fixed price method will be the best choice. For long-term cooperation and in case you are going to change the vector of activity, choose two other models. If you want to know more tech news — please, visit our blog — https://geniusee.com/blog

Taras Tymoshchuck
@tarastymoshchuck

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