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About The Author: Alexey Reshko
Brand Strategist, Digital Marketer, and Business Development Specialist. Strong professional with a Bachelor's degree in Business Administration (BBA) focused on Management from Latvia University of Life Sciences and Technologies.
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Choosing the right engagement model for your project is a very delicate thing that needs to be known quickly. It’s like deciding between active software development and a waterfall. An engagement model is a set of rules and responsibilities that form the basis of the relationship between you and your software vendor for the duration of your project. Let’s talk about the most popular engagement models, fix bid and time and materials.  Let’s see the pros and cons of each.

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What is the Engagement Model?

The client’s journey to success begins with the right engagement model through which they choose to engage in business relationships with software partners. A project engagement model is a project that describes the characteristics of collaboration between a customer and a seller during the development of a project. The engagement model describes the way the expert engages in plans, areas of responsibility, terms of payment, timelines, management, and so on.

An engagement model is a plan that will shape the relationship between you and your supplier that you choose for the duration of your project. It also explains how to deal with payments, to the extent that the terms “engagement model” and “pricing model” have become synonymous.

The majority of ordinary engagement models consist of the fixed price, time and materials, and dedicated team models. So, let’s take a closer look and outline pros and cons of each.

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Fixed Bid (Project Based) Engagement Model

This model features predefined project requirements, fixed time frames, and a fixed budget. This model, sometimes called fixed bid or fixed-price contract, is the most obvious of this group. As the name implies, this model is about freezing your project requirements and specifications together with the costs before development begins. If you are choosing a fixed price model, you should know the scope of your project, its requirements, and deadlines and to be sure that there is no happening any changes on the go. To work effectively in a fixed model, the final product needs to be described very well with every last detail. This means that the planning phase will take longer than other projects.

This can be an effective choice in cases where the requirements, specifications are known, or the need is clear, otherwise, the cost will be nothing more than constant. The client should be able to share a clear idea about the product with the developers to ensure proper results. Usually fixed bid model are choosing for small projects.

Pros and cons of Fixed Bid Engagement Model

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Expected result: The result is negotiated and put in the front row. You receive the product that totally fits your requirements and technical specifications that you’ve made on the first stage before beginning the development process.

Visibility: The fixed price model gives you predictions in terms of project deadlines because all the requirements are written before the project starts. All of our proposed deadlines have already been approved by you so you will know how your project will progress over time and when it will be completed with accuracy.

Less Management from the client: This can be used as pros and as cons, depending on a client’s needs, the understating of how things should work. Compared to other models, the fixed price requires less management and supervision by the client, as the development team is defined and the scope of work and budget are already known.

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Lot of projects won’t fit this model: A good skill to add to your toolbox is to know which projects will not fit this model on this occasion as they may have constantly changing needs. This often happens with big projects. If you can’t deliver, don’t offer the client a fixed price.

No Flexibility at all: Owners should understand that Lump-sum is incapable of nature. They are responsible for any unexpected changes that are beyond the control of the service provider or the owner initiates. The development team cannot change nothing during the development process even if they discover bugs or realize that this idea will not work.

Less accountability: The entire management is done primarily by a member of the service provider team, so the client is not involved in the deeper project.

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What is the Time and Materials Engagement Model?

Time and materials (T&M) engagement model is different from all the aspects. It offers the billing client for the scope of actual work based on the hourly rate of resources. Contrary to the fixed cost agreement, the time and materials agreement have a more flexible schedule and budget, it gives a freedom to a client. Client can choose whether he needs or not to make the tasks, he can control the resources spent on the current task and what is the greatest thing, he is involved in the project and can make changes on the go. The main advantage of the T&M engagement model is the flexibility and the opportunity to adjust needs, add direction, change features, and involve customers to get the perfect product.

The benefits of the Time & Materials Engagement Model

You are free to make as many changes and requests as you can – assuming more changes equals more hours. Want to reconsider? Want to adjust it? You can request all of these things without changing the contract, making it a great option for projects with many partners.

This is an important feature of large projects, of projects where corporations are engaged or also for growing stage startups. There may be a common goal that should be achieved, but knowing how to achieve it is not so important. For most startups and mid-sized companies, it’s best to make decisions in action, develop strategies, and develop customized software together. Such an approach is the basis of agility. Agile is one of the methods that is used when you choose to work using the Time and Materials model.

Avoiding the bidding process at a fixed price saves time and helps you get started quickly. Also, blending rates allow you to see how much time the team spends and commits on each feature, as well as encouraging them to work more efficiently.

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What is the difference between Fixed Bid and Time and Materials?

As the name implies, this model is about freezing your project costs long before development begins. If you are choosing a fixed price model, you should know the exact scope of your project, its requirements, and deadlines. Through T&M, you are billed for any time and any related expenses associated with these projects. When you choose a fixed price model, it puts a lot of pressure on the developer. Contrary to the fixed cost agreement, the time and material agreement have a more flexible schedule and budget.

Final Thoughts, what and when to choose?

Time and Materials

This model is based on the rapidly evolving business and technology world. You are able to make changes on the go and pay for the time the development team spends actually working on your product. Usually when working T&M development team provides you with a pre-discussed amount of software engineers and IT specialists required for realization of your project of any size. Each iteration is planned together with you before its implementation, that gives you total control over the deliverables and the budget.

This model ensures a healthy seller-customer relationship with constant communication. It also provides flexibility so that project features can be changed at any point in the software development process. Time and material pricing formula means established payment for development time. The customer pays the full amount of actual hours and works spent on development. One user and one company exchange rates per hour.

1. Well-adapted to various kinds of projects from small MVP to complex software engineering solutions.

2. Full participation and control over the whole development process.

3. Flexibility on your side, you are able to make changes on the go.

4. Based on Agile approach, Scrum, Kanban or other methodology can be used.

5. Choose if the time-to-market is important for you.

Fixed Bid or Project Based

This approach doesn’t give flexibility to you, but it can be used by the government or other companies, corporations, individuals if the requirements are clearly defined and all the specifications of the project are known in advance. The involvement of the customer is limited. During the development process, the requirements can’t be changed, any changes will lead to additional fees and make the price of the project not fixed anymore.

Most suitable for small-size projects.

1. Based under the Waterfall approach.

2. Strict rules on the specification changes.

3. Used for projects when all software requirements specifications are clear and predefined.