The outsourcing market and the need for engagement models are rapidly growing, with an expected total market size of US$1.11 trillion by 2030. Engagement models play a crucial role in defining the smooth collaboration between the client and vendor. From communication and pricing structure to resource allocation, these engagement models do it all by offering a detailed framework. The three most popular outsourcing engagement models are dedicated development team, fixed price, and time and materials models.
The dedicated development team model offers full control to the client and manages the project scope. The fixed price or fixed bid model offers clients the ability to predetermine the budget and project requirements. The time and materials model breaks the project down into manageable pieces and costs on an hourly basis. However, which one is the right fit for your projects? This blog offers a comprehensive comparison between these: dedicated development team vs. fixed price vs. time and materials. We’ll cover factors and their pros and cons to help you choose the best engagement model that aligns with your industry-specific goals.
What is a Software Development Engagement Model?
A software development engagement model, or client engagement model, is a detailed framework for how outsourcing happens. It outlines how a particular client will work and collaborate with a service provider company. It dictates the unique roles, pricing, structure, and the relationship between the two entities, that is, the client and the service provider. It also suggests risk management practices and managing production costs, ensuring transparency at both the client and vendor levels.
The engagement model ensures consideration of the client’s requirements and specifications at the earliest phase, streamlining the process of custom software development. On the other hand, this model enables the vendor to provide tailored software services, which are mutually agreed upon. From a business perspective, the crucial factors to consider when choosing an engagement strategy model are as follows:
- Type of service needed—is it a small-scale or largely handled service?
- Assessing the risk and the likelihood of it going into a complete failure?
- Estimated budget for the project, and how far can it go?
What is a Dedicated Development Team Model?
The dedicated development team is a flexible engagement model wherein a client collaborates with a team of experienced team members. This dedicated team offers full control to the client, enabling them to direct the team’s responsibilities and manage project scope. The service provider is responsible for finding the best talent for the client, often ending up hiring an outsourced project manager.
It is considered one of the most adaptive business models for a long-term agile project with changing requirements. As far as the pricing structure is concerned, it offers fixed charges according to the skills and expertise you want to cover. However, it has extra charges if resources are consumed or overtime is a factor.
Dedicated Development Team Model: Pros & Cons
Pros of a Dedicated Development Team:
- Long-Term Commitment:
A dedicated team only works on one project at a time, ensuring a larger degree of continuity and consistency throughout the project lifecycle. The team members stay fixed and cannot be easily changed. This helps in providing more efficiency, as they know better what is needed and what sophisticated features to implement in the particular project. - Flexible Services:
Dedicated team engagement model offers the client full control over their project. This helps clients to tailor the project according to their set goals, budget, tasks needed, and the risk involved. Also, clients can put their two cents into the development phase of the project, adding any functionality and prioritizing it first. - Seamless Collaboration:
This engagement model promotes complete transparency between the two parties, that is, the client and the vendor. It ensures a clear understanding of the project goals and outcome, ensuring a smooth collaboration between them. The collaborative environment ensures that the clients can add their innovative ideas and give feedback. With regular communication, it results in a streamlined development process. - Team Expertise and Focus:
Dedicated model offers highly skilled talent, ensuring specialization in a particular field. It drives innovation and problem-solving and provides domain-specific analytics, directly delivering high-quality services. Since the vendor team is highly skilled, the client benefits from this knowledge, resulting in highly desired outcomes.
Cons of a Dedicated Development Team:
- Higher Development Costs:
The dedicated team model shines with flexibility and greater expertise to offer. However, this team model critically changes the project goals and needs at the last minute as well. This can lead to additional costs depending on the team members and the skills added. - Longer Processes:
With the constantly changing project scope, the project development process can take more time than expected. Team members can frequently add features, change project goals, and make revisions to identify issues, delaying the delivery timeframe. This makes it less suitable for projects with a fixed deadline or requirements. - Communication Barrier:
If the vendor team is based in different time zones, proper communication can become quite challenging. This can lead to delays in deciding the project requirements or any updates to add on. It not only affects the efficiency of the project but also can lead to asynchronous collaboration.
What is a Time and Materials Model?
The time and materials model is an adaptable engagement model that breaks the project into different phases. The billing structure is flexible, and hourly labor costs are based on actual materials and time spent on each phase. This enables clients to be more involved and check the visible project’s progress and the associated costs. It is highly suitable for long-term projects.
It ensures smooth navigation through the ever-changing business requirements and keeps enhancing the productivity of the project. As it takes into consideration the changing needs, it allows for adjustments without disrupting the entire workflow, even in the last phases. Moreover, it indulges in criticism feedback and resolves issues early, enhancing the time-to-market delivery.
Time and Materials Model: Pros & Cons
Pros of a Time and Materials Model:
- Transparent Pricing Structure:
The time and materials model offers a detailed structure, which holds the breakdown of project costs according to the resources involved. This helps clients to better manage their budget expenses, as it doesn’t have any hidden costs. Businesses can also choose the materials and tasks they want to add on based on the pricing structure. - Faster Development:
The time and materials model encourages rapid development processes, ideal for building MVPs. As this model is based on incremental iterations, businesses can release usable parts early and get feedback from the real users. This helps in enhancing the project in the initial stages, providing better functionalities and scope of the project to real users. - Vendor Switching:
The time and materials engagement model offers clients the opportunity to switch vendors easily whenever needed. This ultimately reduces the dependency on a particular service provider, offering full freedom to change partners. The billing process is based on the actual work done by the particular vendor. So there is no fixed pricing for the entire project. - Tight Scheduled Processes:
This model ensures that the prioritization is given to the most important functionality, enhancing the efficiency of the project. It provides fixed-time scheduling to all the consecutive iterations, eliminating the chances of delays. In addition to this, it also provides continuous monitoring, fostering a better, result-driven approach.
Cons of a Time and Materials Model:
- Client Involvement:
In a T&M engagement model, frequent client interaction is necessary. This means that the client is expected to actively participate in decision-making, setting priorities, managing changes, etc. Without the client’s involvement, the project goals may not be fulfilled, leading to delays. - Limited Testing:
The time and material model builds rapid projects, often overlooking the need for a better QA testing phase initially. This can result in reduced performance, as it raises specific issues and needs to be revisited later for the changes. Also, it increases the development costs. - Meeting Requirements:
The time and material model is mostly limited to building MVPs and other rapid development projects. In industries that demand complete documentation, service guidelines, and regulatory compliance, the T&M model falls short. With its flexible nature, it is almost impossible to practice structured development processes with hard-coded best practices.
What is a Fixed Price Model?
A fixed-price model, or fixed bid, is an engagement model approach that sets a budget constraint before starting the project implementation phase. This also means that the featured project’s requirements and the deadline are constant and cannot be changed in the future. If there is a need for upgrading the requirements and functionalities, the client has to sign another contract for the same.
When comparing the fixed price vs time and materials model, the former engagement model ensures that the project is completed within the delivery timeline. It is known that the fixed price model is most suitable for short or medium projects, enhancing the process of rapid building of MVPs.
Fixed Price Model: Pros & Cons
Pros of a Fixed Price Model:
- Defined scope:
The fixed-price model comes with pre-defined requirements and essential functionalities. Both parties have to agree upon this detailed agreement. This leads to minimal management throughout the SDLC (Software Development Life Cycle). Also, by setting a solid foundation, it eliminates the uncertainty and misunderstandings that can affect the overall software development process. - Fixed Budget:
A fixed-bid engagement model sets a predetermined budget cost that is profitable for both parties, the client and the vendor. It helps in simplifying the financial planning process, helping you focus on the more important functionalities of the software project. This provides better allocation of resources and funds. In the future, if there is any additional work required, the fixed budget price remains the same. - Lower Risk:
With fixed budget costs, clients can potentially allocate their funds, knowing there will be no additional incurred costs in the future. When comparing time and materials vs fixed bid, the latter protects clients from financial risks. As there will be no budget surprises at the end of the project. Also, there will be no additional costs if extra resources need to be added. - Set Deadline:
This engagement model includes a well-defined delivery timeline; both parties have agreed upon this. It provides a strategic workflow, enhancing the coordination and communication points. The client can have a clear idea about what to add and what not to. Also, with a set deadline, there is no scope for delays, preparing them for product launches and marketing strategies subsequently.
Cons of a Fixed Price Model:
- Upfront Investment:
Clients have to agree upon a budget that suits the service provider’s expectations as well. This results in keeping a certain budget in advance and saving for the upfront costs. For businesses seeking to have a low financial budget at the starting stage, the fixed-price model might not be an ideal solution. - Limited Scalability:
Due to its rigid approach, the changing requirements are likely to be implemented in this engagement model. After finalizing the project scope, budget needed, and the level of risk involved, it becomes difficult to add any changes. This results in signing a new contract if the changes are genuinely needed. - Less Flexibility:
The fixed price model, as the name suggests, the scope and type of the requirements are predetermined. This makes it annoying sometimes, as there is no flexibility. If there are any current software trends to add on, the locked-in scope concept would make it impossible for any kind of adjustments.
Kickstart your software development journey with the right engagement model for your business.
H2: The Ultimate Comparison: Dedicated Team vs. Fixed Price vs. Time and Materials
| Parameters | Dedicated Team Model | Fixed Price Model | Time and Materials Model |
|---|---|---|---|
| Resources Scope | Estimated | Predefined, cannot be changed | Evolving and Not determined |
| Pricing Structure | Monthly cost per team member | Fixed budget for the entire project | Monthly labour costs based on time and resources consumed |
| Requirements Stability | Evolving and Unclear | Fixed and Predefined | Evolving and Unclear |
| Communication | Transparent and Clear communication | Limited communication | Regular communication via collaboration |
| Project Cost | High | Average | Medium to High |
| Project Suitability | Long-term and Complex projects | Small -to Medium-sized projects | Medium- to Large-sized projects |
| Development Model | Both Agile and Waterfall models | Waterfall model | Agile Model |
| Client Control | Full control and access to change the needs | Zero to little control | Middle to High control |
| Flexibility | Moderately to High flexibility (depends on team size) | Most flexible | Least flexible |
| Team Scalability | Middle | Low | High |
The Right Engagement Model: Dedicated Development Team vs. Fixed Price vs. Time and Materials
Selecting the right engagement model helps you align your expectations with the actual delivery of the services, without any delays. With a correct model for your particular business goals, you can fully utilize the services, avoiding overspending requirements. This capability of the engagement model ensures that fairness is maintained for both the client and vendor.
Different models provide their risk tolerance strategies according to their specific structure. Businesses have to choose the appropriate model, keeping in mind the level of uncertainties they will encounter. In addition, ensuring a rapid shift in technology involves businesses needing to remain competitive and preferring long-term agile solutions instead of faster fixes. The right model will help you solve this problem and provide you with an agile solution for overall business success.
Optimize your SDLC process with an outsourced engagement development model that accelerates the development timeframe.
Dedicated Team vs. Fixed Price vs. Time and Materials: Final Takeaways
With the increasing competitiveness of the software industry, the demand for better custom software solutions also rises. There is no one-size-fits-all answer when there is a debate about which one is the better engagement model: dedicated team vs. fixed price, vs. time and materials. Researching and evaluating your business-specific goals, project budget, risk predictability, etc., will help you in finding the correct engagement model.
Each model offers their pros and cons, which we have discussed earlier in this blog. However, partnering with a custom-based software outsourcing company can be beneficial, as they will provide you with a better roadmap and skills to enhance your business success.
