IT Outsourcing Guide: How to Choose an Engagement Model

IT Outsourcing Guide: How to Choose Engagement Model
IT Outsourcing Guide: How to Choose Engagement Model
Introduction
Entrepreneurs who are considering software development outsourcing have plenty of choices to make: which zone to choose, which particular country, and lastly — which engagement model to use as a basis for upcoming collaboration. All of these decisions will define your outsourcing experience, so it's vital to examine all the important aspects in advance. This article is aimed at exploring engagement models that are currently prevailing on the IT outsourcing market.
What is an engagement model and why is it important for business?
Engagement model is the contracting basis that defines how a client cooperates with a vendor of software development services. In a nutshell, it is a set of rules that all the parties involved in the collaboration have to follow. Basically, an engagement model in IT outsourcing is just as important as a business model for the enterprise. Imagine starting a business with no plan, defined objectives, sources of revenue, intended client base, and financial details. Sounds like a secure way to burn out, doesn't it? Successful entrepreneurs realized the value of a comprehensive business plan years ago, and folks from the IT industry have followed their example. Take a look at our overview of the three engagement models that have already became an outsourcing classic and conquered the market with their ease of use, efficiency, and coherence.
IT Outsourcing Guide: How to Choose Engagement Model
Overview of classic engagement models
Time & Material Model
Time & Material Model
Pros
  • Flexible
  • Easy to control
  • Low-risky
Cons
  • Client has to manage the workflow himself
  • The developers team is not dedicated to a single project at once
  • Suitable only for people skilled in software development
Time & Material is probably the most transparent outsourcing model for client-developers relations, as the clients can track the working progress and access the results almost immediately. Not only does this add to quicker fixing of bugs and any kinds of inaccuracies, but also eliminates the risk of dissatisfaction with the end result (product or service delivered). This engagement model is constructed around an hourly rate that is predefined before the work even starts. Then, the client provides weekly or monthly payments depending on how much of the developers' time was spent. Traditionally, T&M is viewed as a model for projects with a dynamic scope, regardless of the duration.

Before even thinking about choosing the Time & Material model, you have to objectively evaluate the level of your technical skills. Why? Simply because you are the only person to assure the quality of the work done by the outsourcing team. If you are new to the software development or your expertise in this area is too weak to perform regular code reviews, than we wouldn't recommend adopting this model.

We also have to draw your attention to such aspects of the Time & Material model as project management and planning. With T&M model, the client actually takes the project manager's role and oversees the development process himself. The only other way is to hire a person who would take the responsibility for planning activities and progress tracking.
This person has to be hired by client himself, as the team of developers is in charge for nothing but technical issues. You have to be able to identify project goals, objectives, time frames, resources, and budget. Without strong project management skills work organized by T&M risks to turn into a troublesome mess.

Another peculiarity of T&M is the fact that a team of developers hired is not limited to your project only, meaning developers can work on multiple projects simultaneously. This brings the issue of prioritization, as you can't expect your project always to be of the highest importance. The need to jump from one projects to another oftentimes results in unprecise deadlines and some tech inaccuracies in the finished product.

Do not jump to the conclusion that Time & Material is good for nothing; it's not the case. This is actually a very useful cooperation framework for people who have IT expertise, but lacking time for a certain tasks and need a "helping hand" that would complete them. Meaning, this particular model was developed for a type of collaboration, where both parties have a decent level of technological expertise. If your reasons for outsourcing software development are far from technical illiteracy, then the chances are you'll get exactly what you've paid for promptly.


Adopt Time & Material model if:
You have a decent level of expertise in software development.
You can act a project manager and technical leader for the outsourcing team.
You are not committed to strict deadline.
You want the development process to be transparent.
The budget for the project has no strict limits.
Dedicated Team Model
Pros
  • Perfect for non-IT people
  • Full-service team at your disposal
  • Ability to have third-party company gather a team that would perfectly fit your requirements
  • Flexible
  • Ability to fully delegate project management and planning to the outsourcing vendor
  • Low-risky
Cons
  • Not suitable for short-term projects
  • The client has to follow up the recruiting process
Dedicated Team (DT) is a model of collaboration when a client reaches for the IT outsourcing company that would act as a middleman between the client and the workforce. The one crucial difference between the Time & Material and the Dedicated Team is the fact that with a DT model a client does not carry out duties of a project manager nor a technical leader. Meaning, the IT services vendor takes full responsibility for the organization of the working process, from the technology-related issues to the salary release and paid vacations. To put it briefly, the DT model is a solution for non-technical people who have a valuable idea but lack skills for making it come true. For adopting this model, you do not need any kind of IT expertise except for the vision of how your project should function. The outsourcing company takes full responsibility for managing the software development workflow, while the client can focus on other aspects: client relations, marketing, sales, etc. Oftentimes, the Dedicated Team provides way more than just developers, but also QA engineers, designers, content managers, and other professionals that are needed to cover the project scope.

When it comes to client involvement in the working process, the DT allows to arrange the collaboration in a way that would suit both parties. Although the outsourcing company basically can deliver the turnkey project according to your requirements, this does not mean that the client should not or cannot be involved in the development. Clients carrying out personal interviews is the common practice at the vast majority of outsourcing companies, so that they could be sure about the skills of every person working on their projects in future.


The client can also easily track how the work is progressing, however this duty also could be delegated to the project manager hired by vendor, or limited to monthly (or even less frequent) reports.

To get the work started, the client has to negotiate budgetary issues with the outsourcing company of his choice. Usually, the project owner comes up with an approximate monthly rate he is ready to pay to each member of the team. Later this rate and its correlation with the requirements will define the allocation process. After the team is gathered, they start to work on the project scope and organize their work depending on the software development methodology chosen. When it comes to working overtime, the coverage of extra hours spent at workplace (if any) might be included in the budget as well, although it also depends on company's corporate policy and should be discussed in advance.

Adopting the Dedicated Team model assures comprehensive working process that involves a lot of people whose competence was proven during the multi-level recruiting process. This contracting basis has such unbeatable advantages as autonomous team of professionals dedicated solely to your project and no need to take care of the hardware, working conditions, career development of the staff, tech leading, etc. As for disadvantages, this model is not suitable for short-term projects (less than one year) due to the fact that the outsourcing company hires new staff basing on the customer requirements, and these people expect the long-term employment with the company.
Adopt Dedicated Team model if:
You have a great project idea but lack the skills for its development.
The approximate duration of your project is a year or more.
You do not want to follow up every step during the development process.
You have the vision of your completed project, but can't define the requirements once for all.
You want to know exactly who you work with and decide whether the person is worth hiring.
You want to save on some costs without compromising quality.
Fixed Price Model
Fixed Price Model
Pros
  • Single-payment contract
  • Perfect for short deadlines
  • Simple and straightforward
Cons
  • Suits only the simplest projects
  • High-risk
  • Inflexible
The Fixed Price is the model of collaboration that seems to be very attractive for newcomers to IT outsourcing. It looks as simple as one-two-three: you think through project requirements, pass them to developer(s), and wait for the work done. Add to this a strictly estimated budget and you'll get why most clients initially seek this model to be the basis of their collaboration with developers — it looks like a perfect price-quality ratio. Well, it does so only until you start digging deeper.

Although this model has such a great advantages as ease of use, clear budget estimation, and fast delivery, its cons might outweigh all the pros. The thing is, Fixed Price suits only the most simple projects with no room for making a mistake or forgetting about a tiny detail you'd like to include in the feature set. The core of this model lies in predefined instructions — if you are dead certain that you have steady and not at all dynamic requirements for your project, that you might be happy with the outcome after adopting the Fixed Price model.
Note, that the predefined instructions can be considered as actually predefined only after you've discussed them with contractors, as in practice, it turns out that even a simple discussion can reveal tons of potential pitfalls. The client also has to realize that initial requirements delimit the architecture of the future project; it might be technically impossible to add something after work is done, regardless of your desire. The IT sector has a tiny share of projects that do not depend on constantly evolving market needs, and if you are sure your project is one of them — the Fixed Price might be the right choice for you. Otherwise, if you want to leave the room for possible amendments and do not want to risk your budget, opt for Dedicated Team or Time & Material contracting basis.
Adopt Fixed Price model if:
You have a very small project with the most straightforward instructions.
You are 100% sure about the project scope.
Your budget is firmly fixed and you don't want to pay any extra charges.
Conclusion
There are no good or bad outsourcing engagement models, these are only suitable or unsuitable ones. To thoughtfully evaluate the project and then choose the right model for its completion are two actions a business owner should take on his way to positive IT outsourcing experience. A well tailored engagement model can turn a simple delegation of a technical task to a third-party into a fruitful strategic partnership.

If you are interested in the IT outsourcing industry and its relation with the business sector, read this article to find out how your enterprise
can benefit from it.

Comments