Launching a new software development project is always an adventure. You start out with endless possibilities and perfect plans. But too often, things go awry.
Budgets balloon out of control, deadlines come and go, or the final product falls far short of what stakeholders expected.
These failures happen a lot more than you may realize.
So, what is it that causes so many software projects to fail?
There are many contributing factors of course. But one underlying issue is choosing the wrong engagement model with your development partner.
Software projects can be structured in several ways, with the three most common being:
- Time & Materials
- Dedicated Team
Each approach has pros and cons suited to different circumstances. Select the best engagement model for your needs, and you’re primed for success. Making the wrong choice can quickly send your project downhill.
Let’s take an in-depth look at how these popular models compare and the situations where each excels.
Fixed-Price Engagement Model
When people think of software projects, fixed-price is often the default model that comes to mind. In this structure, you pay your development partner an agreed-upon price for delivering the project based on the initial set of defined requirements.
Your vendor provides you with a detailed specification document and a corresponding quote. This quote represents the total you pay from start to finish, as long as the final product meets the requirements laid out upfront.
The scope, budget, and project timeline get “fixed” early on. This provides the predictability that makes fixed-price so appealing. You know exactly what you're getting and how much it will cost.
However, this rigor comes with some inherent downsides. Here are some pros and cons of fixed price model.
The Pros of Fixed-Price
- Predictable Costs– With the bulk of the budget defined upfront, there are no financial surprises down the road. You know exactly how much money you'll need to invest.
- Clear Scope– Requirements are spelled out early, reducing the likelihood of scope creep. Ambiguity is the enemy of fixed-price projects.
- Lower Perceived Risk– When you know the cost of hiring a dedicated team and outcomes ahead of time, it feels less risky than more open-ended models. Even if that perception doesn’t always match reality.
The Cons of Fixed-Price
Limited Flexibility– If needs change or you want to modify scope mid-stream, your options are limited without impacting budget and timeline.
Higher Failure Risk– If requirements are not ultra-clear or miss certain details, you often still pay the same amount for an unsatisfactory product.
Potential for Cost Overruns– Scope creep, unclear specifications, and incorrect assumptions open the door for costs escalating beyond the original quote.
The constraints of fixed-price structures make them most practical for relatively simple, straightforward projects where requirements are easy to define upfront. For example:
- Small website development projects with a defined site map
- Customizations and enhancements to existing platforms with well-known codebases
- Short-term projects with limited scope
In these situations, fixed-price can maximize predictability. But for more complex or ambiguous projects, the model becomes far less suitable.
Time and Materials Engagement Model
In contrast to fixed-price, time and materials (T&M) projects have variable costs that evolve as needs change. Rather than a single upfront quote, your vendor tracks hours worked and expenses incurred to arrive at a final price.
Hourly rates for team members are established, along with agreed-upon costs for any materials or tools used. You only pay for the effort and resources actually invested in your project.
By nature, this approach offers much more flexibility. You aren’t locked into a specific scope and budget determined at the outset. Priorities can shift in real time as required.
Let's discuss some pros and cons of time and materials engagement model:
The Pros of Time and Materials
- Adaptable Scope– Requirements can be refined over time without incurring cost overruns. Scope evolves, as do costs.
- Transparency– You only pay for work done, with clear insight into hours logged and resources utilized.
- Control– It’s much easier to pivot focus as needs change rather than being boxed into initial specs.
The Cons of Time and Materials
- Unpredictable Costs– Without detailed specifications upfront, you lose predictability on what the total budget will be.
- Scope creep risks– The fluid nature of the model makes it easier for requirements and costs to balloon without diligent oversight.
- Higher management needs– You’ll likely be more involved throughout the project to monitor progress and align on direction.
T&M provides the right level of flexibility for these types of projects:
- Early-stage products still validating product/market fit
- Research and development initiatives with high uncertainty
- Unproven business ideas being tested for feasibility
- Ongoing support and maintenance for existing platforms
But for well-defined projects with inflexible budgets, the cost variability of T&M makes it less ideal.
Dedicated Teams Engagement Model
The dedicated team engagement model represents a hybrid approach combining elements of fixed-price and T&M. You pay a pre-defined amount each month for your vendor to provide a team dedicated fully to your project.
These dedicated resources work as an integrated extension of your in-house staff. They aren’t juggling multiple clients and priorities. This deeper commitment facilitates tighter alignment.
Let us discuss the pros and cons, starting with the benefits of choosing a dedicated team.
The Pros of Dedicated Teams
- Ongoing Collaboration– With daily standups and direct access, ambiguity is reduced through continuous coordination.
- Knowledge Retention– A dedicated team builds long-term knowledge of your business and product virtually impossible to match with individual contractors.
- Faster Productivity– Teams ramp up faster without constantly switching contexts between unrelated projects.
- Cultural Integration– Over time, dedicated teams feel like a natural extension of your culture versus outsiders.
The Cons of Dedicated Teams
- Higher Rates– Retaining a team full-time costs more than project-based models billed for time worked. But you offset this by getting their full attention.
- Longer Commitment– To get ROI on ramp-up and relationship building, you must keep them engaged long-term.
- Communication Needs– Consistent collaboration is required to build cohesion and prevent misalignment.
This model is best suited for complex, mission-critical initiatives where deeper engagement makes sense, like:
- Multi-year platform development roadmaps
- Next-gen products needing both creativity and technical depth
- Modernizing legacy systems requiring extensive domain expertise
For short-term projects, the ramp-up time makes dedicated teams impractical. They are high-powered assets requiring commensurate problems to solve.
Factors to Consider when Choosing the Right Engagement Model
With such distinct pros and cons, how do you determine what engagement approach is best? Here are the key criteria for evaluating engagement models:
- Project Complexity– For simple well-defined needs, fixed-price offers predictability. Highly complex projects benefit from T&M flexibility or dedicated teams. Assess your project’s intricacy honestly.
- Requirements Certainty– Are specifications clear or likely to change? The time and material model offers room for evolving needs, while fixed-price demands details upfront.
- In-house Capability– If your team has deep expertise in an area, outsourcing may be less critical. With major gaps, a dedicated team can effectively fill them.
- Budget Flexibility– With rigid budgets, fixed-price contains costs. For flexible budgets, T&M provides cost transparency as needs change.
- Timeframe– Short-term projects lend themselves to fixed-price. Long-term initiatives benefit from dedicated team continuity.
- Specialized Expertise– Deep skills like machine learning are acquired faster via dedicated teams vs bringing new contractors up to speed.
Use a decision table to simplify the complex choice:
|Feature||Fixed-Price||Time & Material||Dedicated Team|
|Project Scope||Well-defined projects with clear requirements||Projects with changing requirements or evolving scope||Projects with changing requirements or evolving scope|
|Cost||Fixed upfront cost||Costs are billed based on actual time and materials||Costs are estimated based on project scope and team size|
|Flexibility||Limited flexibility for changes||More flexibility to accommodate changes||High flexibility to adapt to changing needs|
|Control||Less control over project execution||More control over project direction and resource allocation||High level of control over the team and project|
|Transparency||Clear upfront costs and milestones||Ongoing costs and adjustments||Transparent communication and collaboration|
|Suitability||Small to medium-sized projects with well-defined requirements||Projects with evolving scope or uncertain requirements||Projects of any size and complexity that require ongoing support|
|Example Projects||Developing a mobile app, building a website, creating a software solution||Research and development, prototyping, ongoing maintenance||Long-term product development, enterprise software solutions, complex integrations|
Blending fixed-price and T&M or dedicated team elements can sometimes provide an ideal balance. Just be cautious about transition points between models to avoid misalignment.
Fixed-price vs time & material vs dedicated team, no matter which option you select, choosing the right technology partner is equally important. Communicate often, set clear expectations, and align on shared goals. Treat them like valued team members, not faceless vendors.
Do this diligently, and whatever model you pick has a strong chance of sailing smoothly from concept to launch.
Choosing the right engagement model is all about being real with yourself.
Think hard about what you truly need to get this project done, and what kind of relationship you want with your dev partner.
If you just need something simple done fast, fixed price can be your friend. Need flexibility because requirements will change? T&M has you covered. Is this a marathon project that needs undivided attention? Maybe hiring a dedicated development team is the way to go.
None of these options are "one size fits all" - you've gotta find the one that aligns with your goals, resources and risk comfort level.
And remember, whichever model you choose, constant communication is key! When you take the time to find the right fit up front, you set yourself up to steer clear of headaches and rally your project to success.
If you are still not sure about which is the right engagement model and want to hire the right dedicated developers, consult ThinkODC. With our experience and insight, we can help determine the optimal approach for your specific situation.