What is the best engagement model in software development? There are three basic models to handle cooperation and pricing in your project: Dedicated Team vs Fixed Price vs Time and Material. In our article, we compare the most common software outsourcing models and give tips on which one you should choose for your project. Many startups have plans to develop their brilliant project ideas, but unfortunately, they face many difficulties. Especially the beginnings are challenging because of many tough decisions that need to be made. So, how to prepare well for developing your next project to make it run smoothly from the start? One of the main decisions you need to make concerns choosing the right engagement model. It will help you set up the rules on workflow and pricing. You have at least three options: Dedicated Team vs Fixed Price vs Time and Material. What is the difference between them, and which one works best for your project? Let’s explain it!

Things You Will Learn

In this article, we’ll cover everything you need to know about engagement models in software development. We’ll delve into the differences between the fixed price, time and materials, and dedicated team. Finally, we will provide all the information you need to choose the best cooperation model for your project. Let’s find out:
  • Difference between a dedicated team vs fixed price vs T&M
  • Pros and cons of each engagement model
  • Which engagement model you should choose for your project

What is the engagement model in software development?

Before we proceed to the comparison, let’s explain the basics. What exactly is the engagement model in software development? To put it simply, an engagement model is a plan that will shape the relationship between you and your vendor. Even so, there’s no model that is good for everyone. Therefore you should pay attention to choosing the one that fits your project. Different models will help you achieve various results. They outline how to deal with financial issues. That’s why engagement models are sometimes referred to as pricing models.
Let’s move on to a quick overview of the three main engagement models in software development.

Fixed-price Engagement Model

The fixed price is the traditional approach in software development. As its name suggests, it literally means that you always stick to the fixed price. Moreover, the price can’t change during the implementation of the project. It’s set up in advance, and you don’t pay more than that.

Pros:

  • You can plan ahead
This is a save option that prevents you from going over the budget. From the beginning, you exactly know what will be the outcomes you pay for.
  • There’s no financial risk
Setting up an exact sum from the start is very reassuring. It’s especially beneficial when your project is complex. Then making changes during the implementation could simply strain your budget.

Cons:

  • You can’t change the requirements
It’s definitely not an easy way for a startup that evolves quickly. It’s just not working for those who introduce constant changes to their projects. With a fixed-price model, intruding a lot of changes in of no use. Every modification request will result in paying extra money. As a result, at the end of the day, it will make the project price not so fixed. Pro tip: When choosing a fixed-price model, it’s good to know your product well to be able to communicate clearly what your assumptions are. In this way, you can prevent unsatisfactory results.

When a Fixed-price Engagement Model is the best option?

First thing to remember is that this type of engagement model will work out only under some conditions. For instance, only if you have clear expectations from your vendor. Above all, it results in collaboration with fixed rules from the start. A fixed-price model allows for checking the credibility of both the client and the vendor. It is certainly very useful, especially at the beginning of cooperation. It turns out beneficial specifically in the following situations: 
  • For short-term projects with a narrow scope
  • When you have well-defined goals
  • Your vision of the project assumptions is clear
  • You require a certain type of workflow 
  • You accept the effects which are unlikely to change over time

Time & Material Engagement Model

This model is surely perfect for evolving startups that prefer working on projects at a fast pace. In other words, if are in a hurry to finish your project, T&M model is for you. This will help your startup keep up with the pace of the market.

Pros:

  • Power of decision-making
You can give some of your product’s features a higher priority. With this in mind, you can introduce them in the most preferred manner, e.g. at the end of each iteration.
  • Flexibility
A big advantage for you is that you can change the requirements you set up at the beginning.

Cons:

  • Facing negotiations problems
Since T&M model gives the possibility to introduce a lot of modifications, it carries out some risks. For instance, you need to devote some time to negotiations with your vendor. Sometimes it may be time-consuming and cause some misunderstandings on some levels of the project work. Pro tip: In order to avoid problems with communication, you need to achieve transparency between you and the team. Setting up rules of communication right from the start might be a good way to deal with this issue.
  • There’s no set budget
Introducing a lot of changes is always a great option. Even though, this also means that the total cost may go far beyond the sum you’ve anticipated at the beginning. Pro tip: The level of your commitment in a Time&Material contract will be much higher compared to a fixed-price.

When Time & Material Engagement Model is the best option?

The option will work best for you when:
  • You work on long-term and complex projects with several iterations 
  • Your project is still evolving and requires modifications 
  • Your requirements are changing
  • You expect a flexible approach

Dedicated Team Engagement Model

Last but not least is a dedicated IT team option. What is this mode of cooperation about? In short, it is when a vendor delegates their teams of IT specialists so they can work on your project. As an outcome of this team sharing, you gain IT experts who closely cooperate with you on the project. Pro tip: A dedicated team may consist of different excerpts with skill sets that match best to your project. Despite developers, there might be QA engineers, graphic designers, or project managers. In terms of a budget, the team members usually get paid their salaries regularly. Plus, you need to add the extra sum to the vendor. 

Pros:

  • Control over the effects
When you have dedicated teams of professionals who work on your project, you gain a lot. Basically, you can assign to them a variety of tasks that you consider crucial. Needless to say, this option gives you the most control over your project in general.
  • Working with true experts
A dedicated IT team works exactly the same fashion as your regular employees, but even better! They are true experts in their fields who are carefully selected by your vendor.
  • Flexibility
The big benefit for you is that you can make changes to the requirements on a daily basis.
  • Taking the burden out of you
Overall, you don’t have to worry about many issues related to your project, such as HR, recruitment, administration, and so on. Check out our case study and see how our dedicated teams helped MyBenefit to grow.

Cons:

  • Full responsibility
The flipside of having total control over your project in some cases can turn into a big disadvantage. It entails taking responsibility even if things go wrong.
  • No set budget
It means total costs can sometimes exceed your initial budget. However, you still have control over the effects, and the final decision is on your side.

When a Dedicated Team Engagement Model is the best option?

If there’s one engagement model that stands out among the group of three, it’s definitely the dedicated team option. It’s especially beneficial for offshore development. It’s the right fit for you when you need: 
  • Hiring the best talent from around the world
The dedicated model enables you access to working with the best specialists regardless of their location. You can choose experts in the top-notch technologies and programming languages that you need for your project. For instance, if you’re looking for Python or Java, the dedicated team option allows you to find experts in this particular tech stack worldwide.
  • Focusing on the main goals of your project
Working with a dedicated team can prevent you from many distractions so that you can focus on the main objectives of the project. Whenever you hire a software development team working in cloud solutions you don’t need to worry about the aspects such as infrastructure, support, software, hardware, etc.
  • HR issues management
When hiring a dedicated team, you don’t have to take care of preparing a contract agreement, as all HR-related aspects are on your vendor’s side. If you need more advice, reach out to our specialists, and we help you choose your trusted IT team!

How to choose an engagement model for your project?

Here are a few simple steps that you can take to choose the best cooperation model that fits to your business.
  1. Define the project’s scope
Defining the size of your project is one of the most basic clues for choosing the engagement model. So, don’t forget to predict your project’s scope at the beginning.
  1. Establish clear KPIs
Having well-specified KPIs will help you to move your project in the right direction and predict the type of workflow you need. 
  1. Set up start and finish dates
Estimating the length of the project from the start will help you make the right decision when choosing the cooperation model. 
  1. Assess the budget
Taking up a specific budget approach will help you indicate which type of engagement model is best for you.
  1. Point out all your needs 
Does your product need some upgrades, integration or maybe you want to focus on ensuring security? While setting up cooperation with your vendor, never take things for granted – always clarify your expectations. Check out how we can custom software development services for your needs.

Summary

To sum up, each engagement model has its benefits, but it also carries some risks. So, how to choose the right one? The key to success is to match the engagement model to the character of your project. This was a very quick and simplified overview of the three most common engagement models. We discussed when you would get the most out of fixed price, T&M, as well as a dedicated team. We hope it will come in handy in your preparations to start a project. For more tips on software development, we advise you to visit our blog – here, we regularly post the news from the world of startups and technology.  Still unsure which type of engagement model will bring you more benefits?
Our IT specialists will help to adjust the engagement model that matches your needs and scale up your business, so don’t hesitate to contact us.