Comparing Fixed-Price, Time and material, and Dedicated Team Models for Your Project

When hiring a software development company to build your product, one of the first decisions you need to make is which engagement model to use. The model you choose can have significant impacts on everything from project scoping and budgeting to quality and flexibility. In this article, we’ll compare the pros and cons of the three most common engagement models.

Fixed-Price Model

In the fixed-price model, the development company provides you with a detailed specification and price for the finished product upfront. This model offers a few key benefits:

• Predictable pricing - Since the budget is locked in at the start, there are no surprises down the road. You know exactly what features you’ll get for the agreed-upon cost.

• Less effort to manage - Because all parameters are defined upfront, not much active management is required throughout the development process.

However, fixed-price projects also come with a few drawbacks:

• Difficult to accommodate changes - Scope changes can be challenging and costly to implement after development is underway. You may pay a lot for relatively small tweaks.

• Quality issues - Since budget is fixed, some agencies may cut corners on quality if projects run over budget.

So fixed-price works best for well-defined, relatively static projects where exact specifications are known ahead of time.

Time and Materials Model

With time and materials (T&M) models, you are billed based on the time and resources expended by the development team. This offers a few advantages:

• Agility - It’s easy to change direction, add/remove features, or alter the scope according to your evolving needs. Nothing is set permanently.

• Pay for only what you use - You pay for just the hours worked and resources deployed, nothing more. This can provide significant cost savings for projects with unclear scopes.

• Higher quality - With no fixed budget capping hours, agencies can allocate time to quality assurance and infrastructure.

The downsides of T&M include:

• Uncapped spending - Costs can spiral out of control without proper oversight, leading to budget overruns.

• More effort to manage - You need to actively monitor performance since hours and work are not contractually set. This takes more of your staff’s time.

So T&M is better suited for complex, evolving projects where flexibility is key. Closely tracking budgets during development is vital however.

Dedicated Team Model

With a dedicated development team model, you pay a fixed monthly fee for a specific team working exclusively on your project at agreed upon capacity. This offers some unique advantages:

• Extend your own team - The external agency team works as an integrated part of your internal staff. This brings specialized skills and bandwidth when you need them.

• Flexible capabilities - You can adjust team sizing and composition to your evolving needs. Ramp up or down quickly.

• Built-in agility - Since the external team is dedicated to you, you can change priorities and direction swiftly without costly change orders.

• Predictable spending - With fixed team size and monthly rates, you budget predictably while retaining flexibility.

Downsides of this model include:

• Suboptimal utilization - If priorities shift or scope changes substantially, fixed team capacity may over or underserve your immediate needs. Rebalancing takes effort.

• Longer ramp up time - Getting an external team fully aligned with your business and technology environment takes time upfront.

So a dedicated team makes sense for projects that require specific supplemental capabilities for an extended period of time. The fixed monthly cost brings budget predictability, while access to a talent pool gives you added flexibility.

Conclusion

Choosing the right engagement model involves tradeoffs around cost, project flexibility, predictability, quality, and ongoing effort to manage. Carefully weigh the pros and cons against your specific priorities before deciding which approach best suits your needs so that you can hire the best-dedicated developers. And don’t hesitate to consult leading software developers for recommendations – most reputable firms will guide you impartially to the model that works in your best interest.