Insights from Our Experts
The Hybrid model in IT outsourcing.
When it comes to outsourcing your IT product development or maintenance it is important to consider the business model you choose with your preferred vendor, it is widely seen that product owners consider a fixed price model, time and material or a dedicated model with their IT vendor. Several factors govern an outsourcing decision, the services that the vendor's offer include Business analysis, project planning, and management, application development, post-delivery support and maintenance, web development and hosting, technical support, database administration, and telecommunications.
To achieve success in outsourcing, Companies must structure partnerships or business models well and carefully develop it to fit with their business goals. Firstly choose the right outsourcing partner and ensure that it is aligned in terms of the product’s cost, quality, and roadmap. Choosing the right model always depends on the nature and needs of your project. Let us see how the basic three models work for you.
Fixed Price Model - This model is the most favorite model for the clients as the price is mostly fixed and comes with lesser risk on the uncertain project conditions. Fixed price models are good when the
-project size and duration are small
-project deadlines are fixed
-detailed project specifications and documentation are in place
-no bigger changes are anticipated
-and when the client is not willing to take up higher controls and supervision on the execution.
The initiation time for the fixed budget model is comparatively high because it involves a detailed scope freezing, effort estimation, and risk analysis. The cost is also high as the development team takes care of risk management. These risks may occur or may not. Still, the customer always pays for them.
Time and Material Model - This model works well with long-duration projects where the project scope is open to revisions. Also, a new product or a new idea development with raw concepts can choose to go with Time and material models. This model has less initiation time as no detailed documentation or effort estimations are prepared initially.
The cost is defined by the actual time and effort the development company uses, is always flexible and the client has the option to make part payments as and when the cost evolves.
The client has better control and supervision on such agreements. Since the project concept is not fully documented changes and iterations are expected at the execution stage. The development company needs to accommodate all new iterations that the product owner is suggesting, the cost of the execution is always paid by the customer. This model is not fit for projects with a tight project roadmap and delivery timelines. The major disadvantage with this model is the lack of proper order and structure due to no fixed deadlines, open-ended budgets, and extensive scope.
Dedicated Model - A dedicated model is another commonly used outsourcing model in cases where it is an extended team that is working dedicatedly for the client on their projects. This model is the best fit for customers who are already having a development team/process in place and are looking for adding more capabilities or skills to their team for a specific objective. This also works for long-term projects where requirements are unclear and scope changes are definite. The cost of such contracts is planned based on a fixed monthly service fee irrespective of a total fixed project cost or the actual time and effort. The client has to pay monthly payments to the vendor for the service rendered, work supervision is normally carried out by the client company and they have higher control over the execution and project management.
The above discussed are the traditional outsourcing models that companies were adopting, but in the new agile era, we need to think of a hybrid model that works well with small, medium and large customers, which can offer more flexibility and control for the product owner in various stages of product development and scaling up. The hybrid model can be a mix of
Fixed price model and the Dedicated model or
Dedicated model and Time and material model or a
combination of Time and material model and Fixed price model.
The decision on the hybrid model depends on many factors like the project duration, budget availability, product rollout plan and most importantly the product scale-up plans.
It is a misbelief that most of the customers think that they need a development team only for the product development stage most of them ignore the support requirement that is needed for the scaling up or maintenance. In a normal product evaluation period the development duration is less than 30% and 70% of the time customers are investing on the product maintenance and improvement. This period is mostly determined by the external forces and is very dynamic where the product owners may not have full control over the situations and decisions. Here comes the importance of a Hybrid model in IT outsourcing, wherein the initial product development the Fixed price model is adopted where the development team can plan well in advance and stick to defined project scope and timelines.
After the MVP or Production roll-out, the contract type can be modified into a time and material or dedicated model to continue the product maintenance and support. Also, during the scaling up there will be many iterations and feature additions that a product owner and a development team should expect and the Fixed price model alone will not be supporting such iterations always where such changes are mandatory for the product/ business growth.
Well, these choices are governed by a lot of factors, nature of the project, the technology, service and customer support agreement. Also, it's all about making the best of possibilities of each model, we highly recommend customers to choose for a fixed price model in the initial phase of development and move to a dedicated model during the post-delivery support period keeping the entire project life-cycle in mind because at the end of the day it’s the business that should get benefitted.
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