Let’s say you are interested in building a new software product but do not have an in-house development team. A professional software outsourcing company can help you in this use case. Most of the time, clients are not sure about how to pay the developers and they are unaware of the pricing models.
This blog post answers this question by staying in the framework of the Time and Material model.
Time and material is one of the engagement models and the client only pays for the resources and time spent on the project. This model supports agile development, unlike the fixed price model.
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How T&M is different from a fixed price model?
Time and Material model bills the client for the number of hours spent and the number of resources utilized, whereas a fixed price contract is very specific in requirements and sets a single price for the project.
Fixed price model is ideal when a client requires a quick turnaround. Also, requirements are clear and setting a budget for the project is easy. However, in most of the cases, clients do need tweakings and this may result in paying more rather than the ideal price.
Time and material offers actual work scope pricing based on hourly rates of the developers. Clients are charged for the amount of hours spent plus costs of resources.
In fixed price, if the scope of work spreads, client is billed separately for each incurred change in the project.
What sort of projects can seek maximum advantage from T&M model?
There are numerous situations where the T&M model is applicable.
Situation 1: You do not have clear or defined project requirements.
Situation 2: You have a flow of tasks/enhancements but not sure how much time would they take or unable to predict time in advance.
Situation 3: The project scope is unknown and implementation may take months/years.
Situation 4: You want direct control over the process.
Situation 5: You call for change requests during the development process.
Situation 6: Your project involves emerging technologies/ changing market trends.
Apart from these situations, as a rule of thumb, long projects do better with Time and material framework.
Do you have the whole vision of the project in mind?
The time and Material model is used if there is no evident whole vision in place for the final product. Also, the implementation specifics are unclear. Clients are often confused about the division of the project into several milestones/stages.
In such a scenario, Time and Material model is ideal as it’s fully negotiable and the client can use hourly / daily / weekly or monthly rates for the amount of work, tasks, resources and other expenses.
Also, the client can clear the pricing dependencies i.e. if the price is based on the skillset of the team, or it is the same for all resources involved. This helps in uncontrolled pricing for support projects.
Why T&M model suitable for sustained and long-term projects?
Time and Material model is perfect for long term projects which can’t predict the end product at the starting stage of the project. Why? Simply because the model stays reasonable even if the final product delivery takes unlimited time.
Another plus of T&M model for long term projects is that it’s flexible and negotiable budget and with low risk for both client and service provider. Development can start earlier as there isn’t a need for formulation of final requirements. Limited or vague requirements with a set goal in mind is sufficient.
Client has more control over the project. He can add any tasks, give approvals and disapprovals – implementation is on demand. Specifications / enhancements can be discussed/negotiated at any stage of a project.
How do i know if my project is suitable for T&M model?
If you are unable to define your project specifications/requirements, T&M model is for you. Also, there may be a situation which we are unable to define over here. In such a case, you can consult from our team and can have genuine advice (business aside).
In our experience, many times clients cannot determine the exact requirements for his or her software project, mainly because project requirements depend on rapidly changing external circumstances. However, knowing the entire cost of the project before development may make a fixed price contract appear less risky but believe us, requirements do change as the scope of the project in 60-80 percent of the cases we experienced.
This doesn’t mean we advocate the Time and Material model, this simply means this model offers flexibility and keeps you in a reasonable budget.
Don’t you think a fixed price model is less riskier than the T&M?
That is true in a way, however, but it does not come with any real advantages. In a fixed price business model, all the requirements/scope of work and business decisions are made first hand and budget is decided upfront. And if you have vague details about the projects, we suggest T&M model. Here, the calculated cost is based on actual time spent.
The T&M model is suitable for sustained long term projects which don’t require rapid spontaneous development. At the end of each development stage, a client gets the details of the service with the validation of the work, amount of time (hours, days etc.) spent and work cost at a fixed rate.