When you start a project, you can think of it in two ways: by having a set budget and timeframe from the start, or by taking the time and material (T&M) route, which means that the cost is not decided at the beginning of the cooperation, since it depends on the number of hours worked. At a first glance, it may seem that the fixed model is the easier way to get a project done. But actually, time and material agreements bring a lot of advantages, which we will detail in the below article.
Even in our daily lives we can change the way we think or even some decisions due to new information we come across. And most things, except for when buying definitive products, especially services are done in a time & material fashion. Let’s say you hire someone to build custom furniture for your kitchen. In a fixed price contract, you agree on a set price for the entire project, regardless of how long it takes or what materials are used. Once it’s decided, there’s also no place for changes. In a time and material contract you will hire the craftsman by the hour and cover the cost of the materials separately. This way, you pay for the actual time spent on the project and the specific materials used, allowing for flexibility in the project’s scope or for any adjustment you might need to make along the way.
Now let’s think of a software development project that might take months to finish - are you certain you will not change your mind about some aspects of it? Things like new functionality ideas, market changes, or even development challenges can all provide new information that might change the course of the initial project. That’s why we believe fixed price contracts can stifle innovation, and that is exactly why we recommend to our clients the time & material agreements. Let’s take a look at some of the advantages of this type of contract.
As mentioned in a previous article written by my colleague, the importance of communication between the involved parties during a software engineering project is of the highest importance for the final outcome. Communicating clearly, having all the requirements well understood, and collaboration are some of the main assets we need throughout the projects, and especially in time and material agreements, since changes can occur after every sprint. Concise communication throughout the project brings only benefits to both the development team and the customer.
The flexibility that comes with time & material is not only regarding the project scope but also in product functionalities. The project scope might change from the initial starting point of the project, however, market changes might bring forth a couple of new functionalities needed in the project. Needless to say, having rapid response to market changes can set your business up for success.
Continuous and regular feedback helps provide better efficiency throughout the project. You, or someone else in charge of the project from your company, can and should offer feedback at every stage of product development. The customer is, thus, constantly involved by being updated, participating in meetings and giving feedback on the functionalities or features that are just being implemented.
Transparency within the team, transparency at reporting, transparency of costs - all bound by time and material. Since every change, every bottleneck, every update, every deployment is discussed thoroughly at every sprint, the customer has better visibility into the project, compared to fixed price agreements. Time and materials are tracked according to the initial agreement and pricing models, so the cost is easy to audit; flat fees don’t offer as much visibility and transparency.
Sprint retrospectives also help the development team to take notes and discuss what went well, what could be improved in either the process or their collaboration, and decide on next steps, which can greatly improve the end result.
By fostering communication between all parts involved throughout the project, and by having regular feedback and transparency, the end product will be of no doubt of a higher quality. Moreover, having the client see the outcome at every step of the way allows for better decision-making for the final product.
In a fixed price agreement, you have the product idea, you implement it, and when all is said and done, you deploy it. With fixed price contracts it can happen to find out, post-deploy, that some of the functionalities that you included are not even used by the end-users. That's because in this type of contracts you decide upon functionalities at the start and there are no changes throughout development. You spend months working on the product only to deploy the final version and find out that some of the features were not even needed.
With time and material, you decide when to go to market and you can easily launch an MVP before the final product is done, when you believe it's the right time to do so. Launching an MVP brings a lot of benefits:
All these represent benefits of ‘trying out the market’ before you launch the final version of your product, or even to fail fast but deliver your end product faster, since a time and material agreement allows you to rapidly adjust from sprint to sprint.
Depending on the desired functionalities, the budget might not be enough for all to be implemented at once. This approach allows the client to decide upon which are the most important functionalities, and which can be delayed or placed as a nice-to-have in the backlog to later decide whether to implement them or not.
As a customer, by going the time & material route, you are in total control of the costs and the product: you decide when to continue developing your product, you decide upon the main features, and you decide when to stop investing time and budget on a particular product. Compared to the fixed price model where the initial agreement will also be the last. Moreover, paying at definitive times, instead of a lump-sum at once can be easier to manage, financially.
Special note: Keep in mind that the customer must also be involved in the process for it to be mutually beneficial.
All of the above bring another advantage in terms of protection for the client to get value for money, and for the supplier to get paid according to the work done. Both parties must therefore agree beforehand on the hourly rate and on the materials/tools used during the project. In this way, the client can be certain that the work will be carried out accordingly, and the supplier that the work will be reimbursed.
Special note: The total costs involve not only the number of hours worked on the project by the devs, DevOps, or designers, but also project management, meetings, communication, and materials needed in the project.
In a fixed price contract, or more so, in a waterfall project, all the details need to be set in stone before starting working on it, since whatever is decided is what will be received at the end of the timeframe. That means there will be a slow start.
Now let’s think of a time & material contract, or an Agile project, where you can decide upon the starting details, start developing, and then take it step by step, with decisions made on the go, before each next sprint. This allows starting a project quicker and getting the feeling that time is not lost from the actual development period.
Last but not least, if you are not familiar with us, we are Agile-oriented as we know the many benefits this methodology brings. The time and material agreements allow and even promote the idea of working in an Agile way, instead of the more traditional method of working waterfall with a fixed price.
So why did we mention that fixed price contracts stifle innovation? It may be a bit far-fetched, as you can see above that some projects might actually require the fixed priced and waterfall model. However, it is overall more rigid, which means that it doesn’t so easily allow for innovation and unique projects. The readily available time and material option, in our experience, is more suitable and popular for a wider range of projects, and offers you the flexibility you need to create the exact product you have in mind.
At eSolutions, our development team is already accustomed to all of the above, and particularly with the Agile and Scrum approaches. Now the only things left to discuss are your unique project and its requirements!
An enthusiastic writing and communication specialist, Andreea Jakab is keen on technology and enjoys writing about cloud platforms, big data, infrastructure, gaming, and more. In her role as Social Media & Content Strategist at eSolutions.tech, she focuses on creating content and developing marketing strategies for the eSolutions’ blog and social media platforms.
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