It’s now a highly proven and demonstrated fact that, software development outsourcing not only saves a company’s time and money, it also helps them to tap into the high quality global talent pool with a very diverse skill set. But for many companies and entrepreneurs half-way through the project they realize that the engagement model they have chosen with their outsourcing partner might not have been the optimal one and in worst cases it is not working at all. And most of the cases it is neither financially viable nor process wise easy to change the model half-way through.
So to avoid this kind of unsuccessful marriage, it’s best to spend a little bit of time well in advance to figure out which Software Outsourcing Model works best for your specific business case depending on the inherent pros and cons of each software outsourcing model. In this article, we will run you through different outsourcing models, discuss their pros and cons and highlight use cases where that particular model is mostly useful. So this article will save you a major heartbreak later if you read it now and apply it before getting into the relation :-)
OK, let’s take a dig at different Software Outsourcing Models :
1. Time & material model
One of the most traditional and simplest to comprehend outsourcing models is time and material model. In this model clients pick and choose different resources (e.g. Developer, Sr. Developer, Architect, Tester, Project Manager etc.), each of them have a different hourly dollar rate. In many cases providers also suggest the resource type based on their experience dealing with similar projects, but clients will ultimately approve, what mix of resources need to be engaged. Then based on how many hours each resource is working on the project, you pay the provider the total bill based on the man-hours that your project consumed.
Time & material model is known to be used in scenarios when you want to direct the expertise of the development team the way you want to, and for that you pay for the work based on the general scopes of the project and actual time being incurred. This gives you the flexibility to scale the development according to requirement or even terminate the cooperation if the results are not satisfactory. In a model like this, you can expect the representatives of the corresponding teams to substantiate the hours that are spent on the implementation of the individual functions. They should also explain the specific aspects of the development. To begin with this model, you can opt for a short tenure, i.e. 3-6 months and try out the collaboration. If things work in your favor, you can gradually enter a long-term agreement.
2. Dedicated development teams
In this software outsourcing model, you hire an entire software development team from a provider who will only work on your project dedicatedly. Being the product owner, you can control them directly just as the internal employees. You can also define the full team structure very specific to your requirements, like how many developers, how many senior developers, architects, tester or project managers etc. along with their skill set and experience. This model also allows you to be a part of the hiring process since you can participate in the interview, review the performance, and can also influence who becomes part of your team.
This offshore development model is considered to be ideal when the client wants direct continuous interaction with the dedicated resources and willing to invest significant time managing and directing the outsourced dedicated team. If you are looking for long-term support and maintenance, and you have a constant flow of good volume of work, this type of outsourcing model can work better for you. But the major disadvantage of this method is you will have to spend significant time managing and directing the team as the outsourced company doesn’t own that responsibility. Also if you don’t have a constant flow of work there will be time when your team will sit idle and you will still pay for them and at times when there are more work than normal, your excess work will start piling up because of the fixed capacity nature of your Dedicated Development Team.
3. Multi-vendor model
In multi-vendor model you pick and choose different teams for different parts of your project based on their competency and expertise. Additionally, this model allows you to plan and execute each phase of the entire project (for example : backend development, front-end development and UX design, localization etc.) separately and parallely, there by significantly reducing your project completion time.
But the major problem of this model is ownership and coordination. Because multiple teams only taking responsibility for their own areas, you have to make sure that all teams are working towards the larger goal of the project. You also have to make sure each other’s dependencies are addressed in time and doesn’t become a roadblock for another team. And in unfortunate cases you need to resolve conflicts too.
So only go for this model if you are chasing a very aggressive timeline, can’t find a team which can take care of the whole project and you are sure you can take all the vital responsibilities of the project as mentioned in the last paragraph.
4. Fixed-price model
This outsourcing model is one of the most risk-free, efficient and most popular amongst the different types of outsourcing models. Just as the name suggests this model is all about paying a fixed amount of money for a specific scope of work within a specified amount of time. In this method the deliverable of the project is very well defined even before the customer spends their first dollar towards the development. In a lot of cases, even if the customer doesn’t have a fully fleshed Business Requirement Document(BRD), the development team’s architect and business analysts can ask the right sets of questions to the customer and build a BRD.
Since the project scope is defined right at the beginning, the customer is almost risk-free in this type of model. They can rest assured that no matter what, at the end of a predetermined period and by paying a predetermined amount of money they will get a software with predetermined features and performance. Unlike the time and material model, they don’t have to worry about whether the resources are competent enough or if resources are spending more time than normally required. Moreover, they don’t need to bother about micromanaging the resources in order to get the final delivery on time.
This outsourcing model is considered to be the best choice when you’re going to work with an outsourcing vendor for the first time since this model involves the least possible risk. This is mainly because this model allows you the flexibility of milestone-based payment which ensures you can pay in multiple phases, only after the promised milestone is achieved by the vendor. The risk in this model lies with the vendor mostly, since you get the chance of verifying that the developed features are working properly, before making the payment for that milestone, so zero scope of distrust or turn-ups. Moreover, you don’t need to take the headache of constantly supervising the progress or ensuring the quality.
A common misconception is in this fixed-price model you can’t change the scope of work as it’s predefined. But from our practical experience, we have allowed many of our customers to change the scope mid way through the project. Yes, of course if a change in scope incur additional work for us, the budget has to be accordingly adjusted, but this flexibility is always there.
Now that you know the pros and cons of each outsourcing model, what model is a good candidate for what kind of scenarios, you can decide yourself what is the best outsourcing model for your case. But if you are working for the first time with a outsourcing partner and don’t want to expose yourself to too much of risk, then a milestone based fixed-price model is your best bet.