Current models of pricing in the outsourcing of modern IT services

Service outsourcing has recently evolved from a relatively simple concept to a complex set of different options and models. Determining the cost of these services can cause difficulties and confusion for the user. Following this, world practice amounted to 10 outsourcing pricing models. When outsourcing services, the dilemma of choosing an inexpensive option for software development often arises. Often users of these services decide how to collaborate, and understanding how they build relationships with developers is critical.

Choosing the suitable model for a project with precise requirements

Establishing a good relationship between customers and contractors is now half the battle. The next step is choosing a suitable model. This reduces risk and increases the likelihood of a positive outcome for both parties. One of the most commonly used pricing models in outsourcing is time and materials contracts. Time and Material is a working model that rewards the time spent on a task, not the outcome. This scheme is flexible and can be done without a long and thorough analysis.

Time and material model for the start of IT projects

The time and material model is recommended when it is impossible or tough to determine the exact amount of work or the conditions under which it will be performed. The time and material model is recommended for the following projects:

The project is at the stage of testing, maintenance, or improvement.

The development of this project requires a team of five people and the availability of technical documentation.

A large project with a year or more development time involves 25 people.

All tasks are usually divided into different levels of difficulty (easy, medium, hard). Tasks are then distributed according to the workload and qualifications of employees, and project deadlines are set for product managers. At the end of the month (or on another day, depending on the size of the project), a full report is drawn up on what was done, by whom, and under what conditions. Completed actions are generated based on the complexity of messages and tasks.

Sometimes, this model option can be cheaper than a traditional fixed-price model. One of the main advantages of a collaborative approach is prioritizing project tasks for development. Each project is usually divided into several studies (including features, use cases, tests, etc.). The project manager makes recommendations regarding the importance of the task, its complexity, method of execution, and cost. As a result, customers can prioritize the order of performance of these tasks and use options based on the value and relevance of the solution.

Reasons for choosing the time and material model

Time and Material means you pay for results. The salary depends on the time spent developing a specific task. Payment is made after each stage of the development process based on the customer’s needs. Unlike fixed-price models, strict budgets or deadlines do not constrain development teams. This allows us to offer our customers the most complex and, therefore, the most effective solutions. The time and materials pricing model can be easily integrated with agile approaches such as Scrum. Dividing your workload and tasks into separate parts called sprints makes your work more efficient. Each sprint is estimated separately (in hours). These estimates are agreed upon with the client. After completing the task, the client pays for the work, and the developer starts work on the next sprint. This model enables delegation. You don’t need to go directly to the developers and adequately explain everything you want. The project manager will contact you. This model also allows you to reduce costs and control all processes. It should also be noted that the business plan can be easily adapted to modern requirements.

The Time and Materials model is a solution for long-term projects without defined requirements and visions. This type of work is suitable for various projects and is beneficial from the point of view of trust between the contractor and the customer. Both parties can plan resources because the client pays for the work done, and the contractor understands the project’s scope and how much the company can earn. There are different pricing models; only you decide which cooperation model to choose. Everything depends mainly on the nature of the project, the predictability of time, and the cost of a specific IT project. A fixed-price approach works best for short-term development that clearly defines the functionality and concept of the finished product. If you need long-term cooperation and a change of business vector, choose other models. Also, remember that there may be better choices than a proven pricing system to start a project for a particular organization or contractor.