Comparing Fixed Price with Time & Material model
Fixed price and time & material are two pricing models for web application development.
Fixed price: In this model, the client and the development team agree on a set fee for the entire project before development begins. The client knows the project's total cost, and the development team is responsible for delivering the project within the agreed budget. This model works well for projects with a clearly defined scope and deliverables.
Time & material: In this model, the client pays the development team based on the hours worked and the materials used. The project's cost can fluctuate depending on the scope and complexity of the project. This model works well for projects with an undefined scope or for projects that may require changes during development.
Overall, the choice between fixed price and time & material models depends on the specific needs and requirements of the project. A fixed price model may be more appropriate if the project has a clearly defined scope and deliverables. If the project has an undefined content or is expected to change during development, a time & material model will be more appropriate.
How do the models compare in practice?
It can be challenging to find specific examples of web applications that have been developed using both the fixed price and time & material models, as the pricing model used for a particular project is often determined by the specific needs and requirements of the project.
However, we can find some general examples that are commonly developed using each model .
Fixed price: E-commerce, brochure, and small business websites are often developed using a fixed price model. These types of projects typically have a well-defined scope and deliverables, and the client knows the project's total cost before development begins.
Time & material: Custom web applications, SaaS products, and enterprise-level applications are often developed using a time & material model. These projects may have an undefined scope or require changes during development, making it difficult to provide a fixed price quote. In this case, the client pays for the hours worked and materials used.
Some projects may start in one model and change to another during development, based on the project's needs.
In that case, the transition usually happens in favor of T&M, as it turns out that previously fixed projects can not continue under the original method. And also, it's important to remember that these are not hard and fast rules. There may be some exceptions and variations depending on the specifics of the project and the client's needs.
Threats for both choices
When choosing between the fixed price and time & material models for developing a web application, there are potential threats to consider:
- The client may underestimate the project's scope, leading to additional costs or an incomplete project.
- The development team may underestimate the amount of work required to complete the project, leading to cost overruns or an incomplete project.
- If the project requires changes or additions are to appear during development, the fixed price model may only allow for those changes to be made with additional expenditures, with contract renegotiations necessary.
- The project might come to a complete stall, leaving the development unfinished and thus invalidating the whole undertaking.
Time & Material:
- The client may be unsure of the total cost of the project, which can be a concern for budgeting and financial planning.
- If SCRUM or other transparent, agile method is not used, the client may feel that the development team is not working efficiently, as the client is paying for the hours worked rather than the deliverables.
- The project may become more expensive than initially budgeted because, in most cases, the initial scope is not well defined.
It's crucial to weigh the potential threats of each model against the specific needs and requirements of the project to determine which model is the best fit. And it's also essential to have clear communication and a transparent process between the client and the development team to minimize potential threats, set expectations and work together to overcome any difficulties that may arise.
So, which which model to use in my project?
Choosing the suitable pricing model for your web application project depends on several factors, including scope, complexity, and budget. Here are some steps you can take to decide which model to use:
- Define the project scope and requirements: Determine the scope of your project and the specific features and functionalities required. This will help you understand the project's complexity and whether it's well-defined or not.
- Evaluate the level of uncertainty: Consider the level of uncertainty and risk associated with the project. A fixed price model may be more appropriate if the project scope is well-defined and there's little uncertainty. If the project scope is undefined or may change during development, a time & material model may be more appropriate. Keep in mind that it is easy to underestimate this part - the project might seem simple at first, but in the long run - lots of new factors turn it into a complicated creature.
- Assess your budget: Consider your budget and how much you will spend on the project. If you have a fixed budget and need to know the project's total cost upfront, a fixed price model may be more appropriate. If you have more flexibility in your budget and need to adjust the project scope or requirements, a time & material model will be more appropriate.
- Choose a reliable and experienced development team: Choose a development team with experience with the chosen pricing model and a proven track record of delivering quality projects on time and within budget.
By considering these factors and discussing them with your development team, you can choose the best pricing model for your project and needs.
A word of caution about "scope creep"
This phenomenon we call "scope creep" is a most dangerous aspect of the fixed price model.
It's a term used to describe the gradual expansion of a project's scope beyond its original boundaries, often without a corresponding increase in budget or timeline. It occurs when the requirements, features, or goals of a project change or expand during the development process, and the development team is expected to deliver these changes without additional compensation or extension of the project timeline.
In the fixed-price model, the development team has agreed to complete the project within the agreed budget based on the original scope and requirements. If the project scope expands during development, the development team may have to do additional work without additional payment, or they may have to renegotiate the price with the client, which can lead to conflict and delays.
If the client needs to be clearer on the project's scope and requirements or unrealistic expectations for what can be delivered within the agreed budget, scope creep is more likely to occur. Therefore, it's vital for both the client and the development team to understand the project scope and requirements before development begins and to have a process in place for managing changes or additions to the project scope. This can prevent scope creep and ensure the project is completed successfully.
Our experience has taught us to stick with the Time & Material model only, which in turn made us learn various techniques and tricks, to make this potentially scary standard much more bearable for the clients. The most crucial part is played by an extensive Business Analysis workshop that we run with each of our partners before we even approach the estimation part. This will help you gain an accurate insight into the project's scope, and w will be able to determine together how long, and how big of a team we need to proceed to bring your application to the market.
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