Everything You Need to Know About Engagement Models in Software Development
A series that will delve deep into the fixed price, time and materials, and dedicated team engagement models in outsourcing and provide you with all the information you need to make a decision that’s right for your project. Part 1 of 4. (Read Part 2 and Part 3.)
So you’ve got a brilliant idea for your next project and now it’s time for it to be made reality. Among the biggest decisions you are going to make about it is how the development is going to pan out.
To Outsource or not to Outsource?
When choosing how to go about the development of your project, you have three basic options — hiring an in-house team, hiring freelancers, or outsourcing. It’s beyond the scope of this series to go into the details about those choices, but suffice it to say that outsourcing combines the long-term engagement and sustainability of hiring an in-house team with the scalability and lower cost of hiring freelancers into a best-of-both-worlds package.
With outsourcing, you skip the long and time-consuming process of recruiting, onboarding, and training new team members, and you go straight to working with an already-formed team of proven professionals. While you do need those specialists for the development of the project, you probably don’t need them indefinitely, so outsourcing allows you to be flexible and scale up and down according to business needs, without the commitment of hiring a permanent in-office team.
However, once you decide to outsource, you are faced with another choice — the choice of an engagement model. It will dictate how the rest of the development of your dream product is laid out. To make that decision, you need to gather as much knowledge as you can and ask yourself some very important questions. With over 15 years of experience in developing outsourced projects, INDUSTRIA has the insight to walk you through deciding how to approach outsourcing in the best way for your specific case.
In this series, we will let you in on all the intricacies of deciding on an engagement model that will suit you, your needs, and your project. We are going to start off with an introduction of what exactly engagement models are, why they are important for the success of your project, and what is specific about each of the three most popular ones in outsourcing — fixed price, time and materials, and dedicated team.
What is an Engagement Model?
In the simplest of terms, an engagement model is the Plan that is going to shape the relationship between you and the supplier you choose for the duration of your project. It also lays out how payments are to be dealt with, to the degree that the terms “engagement model” and “pricing model” have become synonymous.
What do you Need to Ask Yourself before Deciding?
The first thing that always needs to be remembered when choosing an engagement model is that there will be trade-offs. Here are some of the factors you need to consider before you start contemplating the individual engagement models:
- Type of project. Is your project a simple MVP or a complex and multi-faceted solution?
- Budget predictability. How important is it to you to know in advance how much you are going to pay?
- Scope flexibility. How much detail do you know about how the final product needs to look and work? Do you want to still be able to change or add requirements after the start of the project?
- Time-to-market. How important is it to you that your product reaches its end users as quickly as possible?
- Set timelines. Are there immovable deadlines for the completion of the project?
- Management. How competent do you feel about managing the development of the project?
Answering these questions is going to be an invaluable first step towards deciding which engagement model is going to suit your project best.
Why Does it Matter for You?
Because it can make things go wrong…
Choosing the wrong engagement model for your project can lead to many undesirable outcomes, such as dissatisfaction with the final product, friction between you and your supplier, and, yes, loss of profit. For example, tackling a big, complex project with an engagement mode more suitable to small and simple MVPs can turn out disastrous if you find mid-development that your market situation has changed and the product needs adapting, and there’s nothing anyone can do about it for months on end. On the other hand, going about a tiny project with a small workload with an engagement model that’s perfect for huge, sprawling endeavours in an evolving market context would just be a waste of money.
… or it can make things go right
It’s definitely not all gloom and doom, though. Choosing the right engagement model means that you get the best possible quality for the money you’re paying, you increase the chance of a positive outcome monumentally, and you ensure smooth collaboration with your vendor, resulting in a product that guarantees a sustainable return on investment.
So What are the Different Engagement Models?
Let’s move on to a quick overview of the three main engagement models in fintech, blockchain technology, and web development.
Keep an eye on our blog for more details — over the next couple of weeks, we’ll be doing an in-depth analysis of each one of them, to help you make an informed choice and head straight for success.
The fixed price engagement model is the classic approach in software development. It’s exactly what it says on the tin — you get a fixed price and you don’t pay any more than that.
In order to be able to get a fixed price, however, you need to know everything about your product in advance, and you need to be able to communicate that to your vendor in abundant clarity and detail. And once you’ve done it, that’s it. The requirements can’t change without a cumbersome change request process, which will lead to additional fees and make the price of the project not so fixed after all.
However, the fixed price model has one big advantage, and that is the fact that it allows you to plan in advance. If you’ve got a limited budget, or if your fiscal planning procedure is complex and slow, this model will save you a lot of trouble by giving you an exact sum that is payable at exact moments in time. If the project goes over budget, the difference is handled by the vendor, relieving you of monetary risks (however, this also makes this model the priciest one per unit of work).
Even though this model was once the bread and butter of the software development industry, things are changing fast and now most companies will try to keep away from it, except in very particular circumstances. If you think those circumstances could be relevant to you, or if you just want to know more, you can read more about the fixed price model.
Time and Materials
As the fixed price model is losing momentum, the time and materials one is gaining speed. It’s based on the idea that, in the rapidly evolving world of technology, stakeholders can no longer afford to think up a big project, then hand it off to the developers for a few months — or even years — and trust that the market is going to wait for them to get it finished.
The time and materials model means that you, as a client, are engaged with the project on a regular basis. You decide which of its features are of the highest priority, and they get developed iteratively — with you getting a functioning product at the end of each iteration.
The big benefit for you is that you can make changes to the requirements much more readily than with the fixed price model, and you only pay for the time the development team spends actually working on your product.
The main trade-off is that budget predictability is replaced with budget flexibility — despite estimations, you have no way of knowing for certain exactly how much the project will end up costing you; however, you also have the option of backing out of the project at the end of each iteration, while still ending up with a functioning product.
The time and materials model is much better suited to the fast-changing environment of fintech and blockchain technology, as well as web development. You can react in real time and your project will have a much shorter time-to-market. If you are curious to learn more and decide if this is the right model for you, read more about the time and materials model.
The dedicated team engagement model is your best bet if you’re looking for long-term collaboration on a big project that’s going to develop a complex product from scratch. It’s also probably the simplest one to explain. You “rent” a team from your vendor — a team that might include not only developers, but also QA engineers, designers, project managers, and whatever else you need — and then you pay a set monthly fee, based on the team members’ salary plus the provider’s fee.
With this model, you retain the most control over your project and you get professionals who work as your own employees, without having to worry about handling issues related to recruitment, administration, or infrastructure. The flipside of that coin is that, because you are still in control and thus fully responsible for the project, you need to dedicate a considerable amount of time for keeping the project in check.
This is probably the safest route for projects in the sphere of fintech and blockchain technology, as you will be able to adapt in real time to any changes in the market or any evolving business needs. If you think this engagement model might be the best choice for you, tune in next week for our in-depth analysis of the dedicated team model to find everything you need to know about it.
If you just want to compare the three engagement models with a glance, we’re providing you with a handy comparison table. Consult it and use it as a reference, but make sure to read the in-depth studies of the three separate models in the articles that are coming right up.
This has been a very quick and simplified overview of the three most common engagement models in fintech, blockchain technology, and web development. Stay tuned for Part 2, in which we’ll look in depth at the fixed price model and what types of projects could benefit from it, before we move on to the time and materials and dedicated team models next week.
INDUSTRIA delivers quality web products with each of the three engagement models, as well as bespoke fintech and blockchain solutions with the latter two (time and materials and dedicated team). To talk to us about bringing your idea to life, contact us here or follow the links below.
INDUSTRIA is an award-winning global consultancy and development firm that creates blockchain and fintech solutions, helping both companies and ecosystems significantly reduce the costs and complexity of doing business. Official partner of R3.