Ways of work with remote team: Time and Materials vs. Fixed price
9 March 2020

Ways of work with remote team: Time and Materials vs. Fixed price

We decided to continue a series of articles on the topic of working with teams, and first of all, of course, with remote ones. Last time, in “Tips How to Work With a Remote Team”, we tried to analyze the most common problems that customers may encounter when hiring specialists who are not physically working in the office. Our main task was to dispel all doubts and fears regarding this type of cooperation, and we sincerely hope that we succeeded. =) Now that all the doubts are behind and you have found those who are ready to entrust your project, it is important to understand how to build your further relationship in the best way possible. There are four main models of interaction, and, depending on the volume and complexity of the project, you need to choose the most suitable:

• Time and Materials vs. Fixed Price
• Dedicated Team vs. Individual Coders and Testers

To determine the models that are most advantageous for your cooperation, let's understand what? how? and why?

Time and Materials vs. Fixed price

Time and Materials is an hourly-based approach of paying salary to the developers, which implies the payment for the number of hours spent on the project upon the presentation of work results. However, you should not think that you will simply pay for the hours of programmers, not knowing exactly what has been done, and whether it has been done at all. First (speaking about custom software development serices), you discuss it with the project manager how much time will be spent on each part of the project, then you multiply the agreed number of hours by the hourly rate of the team (the work with Individual Coders and Testers is built on the same principle, but we will get into details about it later). If the total amount suits both you and the team, you can proceed. During the development process, the number of hours may vary slightly: some part will be done faster, and some will take a little longer, as you may need to add some new features.

This model of working with a remote team is a good fit for you if you are initially not sure about the full functionality desired and you may want to add or remove something during the development process. Or maybe you only the idea of creating a product, but there is no clear vision of how this should work. Using the Time and Materials model your project becomes more flexible. It is best to go with such a payment system if the project is voluminous and complex. Most often in projects like that there is a need to change and add something.

remote software development team

Now let's look at the other interaction model: a Fixed Price model. According to this model, a business analyst creates a specification in which all the functionality is described in great detail before giving the project to the development team. Thus, your team will understand exactly what the final product should look like and be able to give it an assessment. The price of the project and the number of hours for its development are determined based on the specification. Only then, the customer and the development team will sign the contract for a certain amount of hours and money to be paid for it and set a strict deadline. After that, the team begins working.

This model is certainly good precisely because you know in advance how much money will be spent. However, on the other hand, you do not have the opportunity to make changes. Designers and programmers work strictly on schedule and any changes will entail a discrepancy in the number of hours worked under the contract and the number of hours actually spent. As a result, development may be delayed, and the deadline may be violated. By the way, sometimes it happens that trying to adapt to the customer, the developers meet unforeseen client's requirements and add new features and still manage to meet the deadline. However, there is a high probability that sometimes developers have to sacrifice the quality in order to catch the deadline. That is why the Fixed Price model is suitable if your project is small and simple, as well as if you know exactly where and which button should be and what functions it is supposed to perform.

It is also worth mentioning that when choosing a Fixed Price model, the assessment of the time and cost of the project is based on previous work experience. This means that in addition to the main points, it is also taken into account that the customer can change the requirements, delay the deadlines and ask to redo the finished parts of the project. All these aspects are included in the cost of the project. As for the Time and Materials model, all problematic issues are taken into account as they appear. Thus, if the development goes according to the time originally assessed, then the total amount will be less than if you chose the Fixed Price model.