January 12, 2021

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

Pricing Models in Software Development

At the initial stage of the software development process, it is important to choose a procurement contract’s type. It is valuable if the managers will select a contract that provides the 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 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 web sites with ready templates is much easier to count.

Firm fixed price contract project management

In case of a firm fixed price contract project management, vendor prepares a quotation with a set selection of features. With well planned schedules, a development team can reduce the likelihood for 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.

Fixed firm price contract

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 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.

Time and material contract in project management

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.

Time and material in project management is 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;
  • Exact number of team members;
  • Dynamic scope of work and flexibility;
  • Cost control.

Time and material in project management

Time and material contract in project management is usually used with Agile project management like Lean, SCRUM, Kanban. This method allows to implement 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 for 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.

Project management fixed bid vs time and material

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

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

Contact CoreTeka for discussing the conditions.