Fixed Price vs Time & Material vs Dedicated Team: Which Engagement Model Is The Best?

When it comes to choosing an engagement model, it is quite a confusing task to choose one among the Fixed price, Time & Material and Dedicated team model. Here, we bring a detailed article on outsourcing, pros and cons of outsourcing and measuring each engagement model with their features, pros, cons, and when to use them. Read in detail.

Fixed Price vs Time & Material vs Dedicated Team: Which Engagement Model Is The Best?

It is very difficult yet an important task for any organization to select the perfect engagement model for their upcoming product. Today we will talk about Fixed Price vs Time & Material vs Dedicated Team comparison in detail.

The task is quite the same as deciding between waterfall and Agile software development. If you choose the engagement model then it will give positive results rather than the methodologies.  

Overview of Engagement Models

A client engagement model is a plan or design that decides the reason for collaboration between the software development company and the client. 

The engagement model mainly aims at wants, needs, and  interests of the customers by ensuring the level of responsibility, flexibility, and control. 

There are three most desired engagement models that are used in software development and they are fixed price model, time and material model as well as a dedicated team.

Fixed Price Model(Working Features, Pros & Cons)

Fixed Price Model
How does it work?
Fixed Price Model is basically a fixed price contract where the software development team of the company submits the project within a particular sum that is agreed by the client and the company.  

Fixed Price Model is profitable for the clients as they don’t have to pay anything except the agreed price. But the process can be difficult for the software development team of the company. 

How does it work?

This is because if the clients decide to make any changes when the project is in the development stage, then the IT company has to repay the excess amount by decreasing the profit margin.    

The entire process can instantly make the business relation bitter. Then it will solely become a risk management venture where the company’s focus would be in minimizing the risk instead of achieving the business goals.    

The situation may get worse when the company, as well as the PM of the provider, are at odds when there is a change in scope. With this, you can understand that you can’t take any risk to make changes in this engagement model. 

The Fixed Price Model can be adopted only for short-term projects. This is because their specifications, as well as the requirements of the short-term projects, are predictable and rigid.  

When to use it?

  • For the short term projects which have limited project scope.  
  • Projects having well-defined goals, workflow, vision as well as results where there is a less chance for the course of development.  
  • If the company wants to test a new software service provider before collaborating with the company’s permanent dedicated developer.  
  • When external as well as in house teams have the fruitful environment to make collaboration where both the parties are aware of each other’s capabilities.  
  • For MVP Products.  

Features

  • It is known to be reliable and efficient.  
  • After signing a contract you have to pay a certain sum of money for the particular work done.  
  • Fixed Price Model cannot be modified easily.  
  • Customers are not actively engaged in the process.  

Pros

  • Predictability is one of the most important advantages of this model. Not only this but one can also regulate the overall expenses of 1 to 2 months before the start. The Fixed Price Model needs proper deadlines which can help the developers to complete the project within the time period.  
  • The work of the project is extremely easy and simple as it is divided into individual tasks.  
  • The requirements, as well as the specifications, are clearly defined along with various information giving a proper view of the entire project.  
  • The total cost is always less than the budget.  

Cons

  • It is rigid.  
  • If the company fails to provide the detailed requirements correctly then the final output may not come as expected. 
  • If you make any changes in the scope, then it may lead to change in the overall cost which has to be compensated by the service provider.  
  • This model needs a face to face discussions and meetings between both sides before starting the project.  

Time and Material Model(Working Features, Pros & Cons)

Time and Material Model
How does it work?

In the Time and Material Model, the expenses needed on development depends on the time and the number of resources utilized by the development company for the project. 

One of the most important points to consider is that the client makes the payment for the total time needed for the development of the project. There is no payment for the time when they do their personal work.    

It becomes important for the client to offer the scope of the project and to supervise it. So you have to define your requirements very clearly so that the client can deliver you the project as fast as possible. 

On the other hand, if you fail to define your requirements clearly, it may consume additional time to rework on it.    

If you don’t explain your requirements precisely then you may have to pay extra money as in this model you are paying the client on a timely basis in which the cost depends as per weekly, daily, or hourly basis.

When to use it?

When to use it?

  • When the company wants flexibility for modifying its requirements as well as varying the workload.  
  • Long term contracts which are continuously extending its time limit with unclear requirements.  
  • When the company wants transparency between both sides.  
  • Implementation of the difficult project which requires various iterations. 

Features

  • It is great for long-lasting cooperation.  
  • Can be easily adjusted to any sort of changes.  
  • Time and Material model does not need any advanced features and hence you can use it when all the features of the future product cannot be elaborated at once.  
  • The payment is made on an hourly basis.  
  • You can sign this model whenever you are ready to offer your team with required tools. 

software-cta-second
Pros

  • Time and Material Model provides enough flexibility as one can easily make changes without even worrying about the budget.  
  • It has a low risk because it is flexible and has a negotiable budget which is profitable for both the company and the service provider.  
  • The model helps you to take measures with iterations until the client has a strong MVP instead of just planning everything. 

Cons

  • There is low budget control in this model because the total cost may exceed the overall budget if the client requests some additional features.  
  • The client’s involvement is a must in this model that consists of spending enough time in meetings and discussion with the development team.  
  • If the client needs to make some changes in the project, then there are chances for the delay in the delivery of the output. 

Dedicated Team Model(Working Features, Pros & Cons)

Dedicated Team Model
How does it work?
Dedicated Team Model is such a business model which is acquiring huge popularity in the IT outsourcing business. 

In this model, the service provider, as well as the customer, sign a mutual agreement as per the project requirement workload for a certain period of time. 

On the other hand, the development company offers IT professionals who suit the needs and demands of the client.  

The in-house team will totally devote its time on the particular project whereas the outsourcing service provider will be having entire management control over the team as well as the project. The company will be held responsible for administration and recruitment support.   

The DTM has a simple and clear pricing method. There are monthly payment methods depending on the size of the team. The payment system includes the fee of the service provider and members’ salaries. 
When to use it?

  • If the development company demands to have a full-fledged team that possess specific expertise and skills but unable to manage them. 
  • Have a plan to develop a long term relationship with the IT outsourcing vendor
  • If the demands and goals of the company are not precise and have to go through certain changes during the development process. 
  • If the company is in search of a skilled development team and that too in the minimum cost. 

Features

  • The in house team should totally devote its time into the project. 
  • The client has direct access over each and every stage. 
  • The IT outsourcing vendor offers a Business Analyst as well as the project manager who will regularly communicate with the in house team. 
  • The employees who fulfil all the eligibility criteria are selected for the project. 
  • The Project manager will provide a timesheet on the specific tasks in this Direct Team Model. 
  • The outsourcing service provider will closely monitor the performance of the employees.

Pros

  • DTM is a simple and clear process. 
  • The development company can hire a project management and quality analyst team at lesser fees as compared to a fixed price model. 
  • You don’t have to go for any sort of long term investments, taxes, start-up expenses or infrastructure. 
  • The development company can hire experts from other countries and get their work done. 
  • Communication with lots of IT professionals having advanced programming skills and finally hire the deserving professional as per the requirements of the projects. 
  • Having control on the entire project and the team and being able to replace or add new team members as per requirement. 
  • Frequent and direct communication with the in-house team which will help to build a strong understanding. 
  • The status of the task will be estimated with the use of a project management tool.

Cons

  • If your project is of the short term then it’s better to go for another model as the Dedicated Team Model is not suitable for the short term project. 
  • Being a part of a development company, you have to devote your time in team selection or else it would result in disappointment. 
  • The Dedicated Team Model can be more costly than the first two models as it doesn’t require continuous software development. 
  • Both in house and development teams can have different opinions that make the environment bitter. 

Time and Materials Contract vs Fixed Price – Methodologies

There are many methodologies of development in the IT field but mostly the companies prefer to implement Waterfall and Agile methodologies as these are suitable for Fixed Price and Time and Material Contract. 

Waterfall Methodology

Waterfall Methodology

Waterfall Methodology is also known as Liner Sequential Life Cycle Model which works in the consecutive order. This means when the first step is done perfectly then only the team will move forward into the next step. 

The developer cannot make any changes once the task has been started. That’s why it is important for the company to arrange complete information about the project.  

Waterfall Methodology can be perfect for start-ups because the team leader and its members have all the information and ideas about their project. 

It is like functionality, features, design, target audience, and total budget needed to accomplish the goal then a Fixed Price Model can be the best choice here. This will help you to decide Time and Materials vs Fixed Price model.

Generally, the start-ups don’t have expertise in the field of technology, so they find huge difficulty in supervising the project. 

When they hire an outsourcing vendor by paying a fixed price, then they can easily get rid of the stress.  
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Agile Methodology

Agile Methodology

Agile Methodology is a way where the team manages and controls the project. They do it by segmenting into various stages as well as involving the engagement of stakeholders. 

In this methodology, the outsourcing vendor seeks constant improvement as well as reiteration at each and every step. Time and Materials vs Fixed Price PMI can be determined here as well. 

If you have planned the ideas in advance and if you are familiar with the features that you are willing to add in the project and you don’t have enough time to recheck and manage the development team, then feel free to use the Fixed Price Model. 

On the other hand, when it comes to redesigning an existing mobile app or old website or you have got a project where you need to add lots of features or customized options as per the demand of the company, then you can use Time & Material Model.

So, this is the in-depth Fixed Price vs Time and Materials model. 

Comparing the Three Engagement Models

   Time & Material  Dedicated Team  Fixed-Price  
Project Size  Moderate – Large  Large  Small 
Time Span   Normal – Long Term  Long Term  Short – Medium Term 
Control of the client  Average  Full  Less 
Rate  Weekly, Daily or Hourly basis  Fixed payment per month  Fixed rate 
Budget   Average  High  Rigid 
Requests for changes  Can be changed during the implementation of the project  Can be changed during the implementation of the project  Can be changed after the completion of the project 
Time-frames   Step by step  Approximate  Preset  
Scalability of team  High  Medium  Low  
Dedicated resources   Not assigned   Scalable  Allocated  
Opportunity to work   Low – Moderate  High  Moderate 
Demands  Increasing  Increasing  Specific 
Reports   Regular reports   Regular reports   NIL 
Technology Stack   Depends on situation  Flexible  Planned in advance 

Read also: How To Choose Best Technology Stack for Web Application Development?

Why Dedicated Team Is the Best Engagement Model?

We have discussed the features, pros, and cons of Fixed Price, Time & Material, and Dedicated Team Models among which the Dedicated Team Model always stands ahead.

Before this discussion, we have already discussed Fixed Price vs Time & Material vs Dedicated Team the difference. 

There are lots of reasons which play a significant role to make it the best model among all. Following are the reasons:  

Hire Best Talent AS PER YOUR NEED

Hire Best Talent

The companies can hire experts from any part of the world who are experienced in their respective fields like PHP, Node js, Angular js, etc. 

This helps the company to make a choice whether they want to expand or shrink the team size. Once the expert is hired, they proceed to the next phase.   

No Overheads & sTRESS

Once the experts are hired by the development company, they can easily get rid of the unwanted stress in various aspects like technical support, recruiting, hardware, infrastructure, software, other tasks, etc. 

This is because these works are managed and controlled by experts. Now the company is free to focus on other works.  

Passing Legal Boundaries

If you have hired a dedicated team that belongs to another country and is serving all your tasks very efficiently, then there won’t be any problem in legal aspects related to international taxes, international properties, etc.   

Accountability & Performance

Accountability

Tracking the performance of the development team is the major task of the outsourcing company

This will help them to know whether everyone is maintaining the proper rules and regulation to fulfil the goal of the company as guided by you. 

The outsourcing company has the right to take strict action if there are any discrepancies or issues. It will help you to decide the Team vs Time comparison.  

Staff Management

Staff Management

The outsourcing vendor will sign a contractual agreement with the dedicated team which will ensure that the outsourcing vendor has the authority to look over all the tasks related to HR. 

Various tasks such as salary hike, employee benefit, annual bonuses, employee leave, medical allowances or insurance will be managed by the outsourcing vendors.   

Saves Time & Money

If you belong to a company or a project manager, you know that outsourcing costs are very huge. 

Not only some companies pay a bulk rate simply for initiating the project development stage but Dedicated Team Model is quite different to this even after being an outsourcing model. 

This is because the payment structure is based on the work done and the company plans the budget as per that.  

It will help you to know the Fixed Price vs Time & Material vs Dedicated Team comparison.

Conclusion

So we have gone through various engagement models – Fixed Price vs Time & Material vs Dedicated Team and their types. 

We have also elaborated each and every model that include advantages, disadvantages, features, methodologies and lots more among which the Dedicated Team Model is the best option for the long-term contracts. 

It has lots of advantages as you can guide your team directly and save additional costs. 

You can also get in touch with eSparkBiz Technologies – A Top Web Application Development Company to know more about the outsourcing business models.   

Chintan Gor
Chintan Gor
Enthusiastic for web app development, Chintan Gor has zeal in experimenting with his knowledge of Node.js in various aspects of development. He keeps on updating his technical know-how thus pinning his name among the topmost CTO's in India. His contribution is penned down by him through various blogs on Node.js. He is associated with eSparkBiz - a Node.js Development Company from the past 7-8 years where one can get premium services.
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