Pricing Models in Software Development: Fixed Bid vs Time and Material

• Firm fixed-price contract project management
• Time and material project management
• Requirements for pricing models in software development projects

At the initial stage of the software development process, it is important to choose a procurement contract type. It is valuable if the managers will select a contract that provides high characteristics in accordance with corporate operating procedures and business goals.

Let’s find out the main financial models of cooperation for software projects. When picking the right methodology for meeting the objectives, our team agrees on two options: project management fixed bid vs time and material. These categories are characterized by various rules and represent different ways of software development projects implementation (waterfall vs agile project management).

Firm fixed-price contract project management

Firm fixed-price contract project management implies the estimation of a project within a specific time frame and budget. Involved team members, amount of work and deadlines are completely set. A client cannot make changes after work starts, or they will be billed separately. Usually, they are not ready to pay for additional work. In that way, the price for websites with ready templates is much easier to count.

In the case of a fixed-price contract project management, the vendor prepares a quotation with a set selection of features. With well-planned schedules, a development team can reduce the likelihood of conflicts between parties. When a fixed firm price contract does not include specific details, a client may think that they have overpaid for a minimal volume of work.

We can define such benefits for firm fixed-price contract project management:

• Low financial risks;
• Fixed deadlines;
• Process predictability;
• No continuous supervision from a customer.

Waterfall project methodology manages fixed firm price contracts, where there are concrete predefined stages — for example, a coding phase will be always before testing. It is less flexible than Agile project management because there is no room for adjustments.

Time and material project management

Time and material contract in project management is suitable to monitor a budget by moderating the inclusion of team members for a specific period. A client pays for hours of work, which will be checked by special programs, and materials expenses (custom software licenses, hardware, etc).

With regular meetings and constant communication, a client receives detailed reports, and they can increase a budget without risks. This method provides a collaboration of contract parties throughout all project stages.

IT staff augmentation and dedicated teams are used in time and material project management — you can get the exact number of outsourced specialists and adjust their workload on a daily/weekly basis. Enterprises worldwide prefer software development outsourcing to Eastern Europe.

Time and material in project management are better when it is cheaper to pay for changes as they occur rather than pay for risks or bugs that may not happen, using firm fixed-price contract project management.

Benefits of time and material contract project management:

• Ongoing decisions and response to changes;
• The exact number of team members;
• Dynamic scope of work and flexibility;
• Cost control.

Time and material contract in project management is usually used with Agile project management like Lean, SCRUM, Kanban. This method allows to implementation of changes and improvements and to run project stages in parallel. It also allows you to start the work when you have only business requirements. It is easier to fix bugs and obtain users’ feedback.

Requirements for pricing models in software development projects

Time and material project management suits dynamic projects whereas firm fixed-price contract project management is for simple and quick projects. Many software companies are choosing now flexible time and material contracts in project management. But, when adding new functions and features, time and material in project management may be difficult to control as they require strong management skills and constant participation. At CoreTeka, our team has been sharing its ideas for new software development project models. Make sure to read about our online workshops during the pandemic.

As to our analysis of project management fixed bid vs time and material, we can specify that fixed-price contract project management requires concentrating on timelines and costs. With time and material project management, quality makes solutions more competitive.

Also, make sure to look through our “What is Amazon Logistics” blog post to discover the largest retailer’s logistics strategies.

Coreteka will be your reliable partner in selecting a model that will lead you to profitable results.

Contact CoreTeka for discussing the conditions.