Fixed Price or Time & Material?

August 31, 2021

Finding software in the ocean of the Internet, which has all of the needed features and is perfectly fitting to your company is not an easy task. There are boundless offers on the market, but you can never be sure that it will fulfill all your needs and you will not want to change or add anything. Building a solution, yourself, from the very nothing is even more difficult because it requires time, well-educated developers, and needed tools.

At hard times like this, you can still see aVERY bright light in a tunnel. And with a wide smile, you reach for a hand to the software development company, WORKITNOW. After a call and introduction, you are required to pick a cooperation model - the two of them are very different and there are multiple consequences regarding your decision.

If you are struggling to pick one of them, this article is for you!

Fixed price model

A fixed price model is, as the name says, a model which fixes one price regardless of the time or the expense. More clearly, you decide on one price for everything and wait for the project to get delivered to you. It gives you the feeling of general peace when it comes to your budget because everything is decided at the very beginning.

The most important factor in this model is planning and transparent requirements. There is no need for you to supervise anything during the development of the product; although, as WORKITNOW we still encourage our clients to have a weekly update on the project’s progress. If everything is clear at the beginning, you will get what you have asked for. It is like ordering a pizza; you call a pizzeria and ask them to prepare a simple Margherita for you – and that is what you get.Fixed price is a great model when it comes to small projects.

But how does it really work?

Do not get ahead of yourself because a fixed price does not come without any cons.

Due to the established price given in advance, there is no way you can introduce changes to the project at the stage of work without intervening in the contract. You get your product at the very end and there is a possibility that it will not be exactly what you have asked for. To avoid such outcome, you must give a very specific specification and a work schedule- you, as a client, have to be sure that the scope of functional requirements will not change.

Referring back to our pizza example: let’s say that you have ordered the simple Margherita, but after a few minutes decided that you actually want it to be with a different type of sauce and cheese, and you also want the hot dog crust. You call the pizzeria and introduce these changes: but they refuse to take them into consideration because they have already put the normal crust and sauce and cheese into the oven. You can either get the order you originally asked for or pay extra to get the second one.

Intending to assess the objectivity of the price, the fixed price model also needs the client to have a piece of specific knowledge about the technical field of work.You cannot cut the costs down to a great extent because it will result in the poor quality of the product.

In order to save yourself from delays and chaos, companies and clients include in the agreement a risk margin. This way you can avoid rewriting the agreement considering every slight change that would normally need to be included.

At WORKITNOW, we also introduce CR - which gives you more flexibility with the scope. Changes in the functional scope are always determined and redirected as‘Change Request’ – that is, a change of functionality to the order.

Taking all of this into consideration, a fixed price model would be great for smaller projects, which do not need to be supervised at all times. There is a huge possibility of being mistakenly understood and getting your software done in a way you would not want it to.

When should I choose a fixed price model?

• It is a quick and small project that does not have any ‘catches’

• You know and can communicate exactly what you want to get

• You will not change your mind about anything

• You have a strict budget

• You need to establish an exact deadline

• You do not want to have calls and meetings about the project  

Time & Material

The Time& Material model differentiates from the fixed price in the terms of settlement and your input into the project. This cooperation model does not require paying one price at the beginning – rather than that, you calculate the hours developers have spent on programming. There is no need to estimate the cost of the entire project just after the first meeting.  

In this case, a client is actively taking part in the project development. That means that you are more in control of everything happening and can come clean with any remarks about the work.

Usually, a client appoints a Product Owner, who is a person with the best knowledge of what the project is to implement. A Product Owner knows what functionalities they need to achieve the business goal. They also can delegate tasks and responsibilities to others, while remaining accountable.

Developers can start working as soon as possible because during the development there are multiple calls and meetings discussing each detail. You do not need to have a very specific vision about everything at the very beginning. Your thoughts about the project can evolve and you can change anything you like.

But how does it really work?

The team of developers you employ cuts the general plan into small sections. Then, different workers get different tasks. That way they can work faster to get you your software. You talk about needed time, how many people to get, and the imprecise cost. After agreeing on everything the team can start the work.

Every now and then you get to talk to the developers and have a full review of the progress they have made. You can make changes, talk to the workers about their vision, maybe even change your whole plan. It is important to remember that the must-have is general knowledge about software development, so you can understand everything the developers communicate. Leaving everything alone does not work in this scenario and it is inadvisable to do that (like you tell the kitchen staff that you want your pizza to be kind of sweet – thinking of putting ananas on it. But they got you chocolate. Why?!)

The biggest benefit of the time & material model is getting your software exactly the way you have wanted it to be. Because of the fluent and frequent communication, every problem comes to light – there is no room for any mistakes. In the end, you get a high-quality product which you can be proud of.

Why are people scared of time & material?

Well, when you are not sure about the reason behind someone’s actions it is always about money. It seems hard to control your budget when paying a worker per hour but remember that you get an approximated cost of every action taken by different teams. The crucial segment of it is that you get regular reports which reveal how much time needs to be spent or has been spent working on a separate part of development, how many people were involved, and the cost of materials.

When should I choose a Time & Material model?

• It is a big project that is going to take a longer time to develop

• You are not sure of what you want or need

• You will probably change your mind

• You want to have calls and meetings about the project

• You do not care about deadlines

• You have a bigger budget and can spend money on developers in an hourly manner

 

Everything comes down to evaluating the type of project you are going to need.

If your software is going to be small or medium-sized, you know exactly what you want, have no intention of changing your vision, have a strict budget and deadline you should choose a fixed price model. There is no need for you to be meeting or talking to developers, and when it comes to the smaller software there is a smaller chance of making a mistake.

If your software is going to be big and long-term, you are not entirely sure of your needs and think of changing everything every few days, need to be informed about every action, are not pressured into any deadline, and have a bigger budget which you can spend to pay every developer an hourly rate you should choose a time & material model. That way you can relax and always know about every step.

We hope that this article has made the differences between the fixed price model and the time & material model clearer and now without any doubt, you will be able to choose which one you prefer, and which one is better for your project!

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