IT Outsourcing Guide: Choosing a Social Engagement Model
Entrepreneurs who are considering outsourcing software development have to make a number of decisions: which zone to choose, which country and lastly – which engagement model should serve as the basis for the forthcoming collaboration. All of these decisions determine your outsourcing experience. It is therefore important to check all important aspects in advance. This article looks at engagement models that currently dominate the IT outsourcing market.
What is an engagement model and why is it important for companies?
The engagement model is the contractual basis that defines how a customer works with a software development service provider. In short, it is a set of rules that all parties involved in the collaboration must follow. Basically, a commitment model in IT outsourcing is just as important as a business model for the company. Imagine starting a company without a plan, defined goals, sources of income, intended customer base and financial details. Sounds like a safe way to burn out, doesn't it? Successful entrepreneurs recognized the value of a comprehensive business plan years ago, and people from the IT industry followed suit. Take a look at our overview of the three engagement models that have already become an outsourcing classic and have conquered the market with their user-friendliness, efficiency and coherence.
Overview of classic engagement models
1. Time and material model
- Easy to control
- Low risk
- The customer has to manage the workflow himself
- The development team is not dedicated to a single project at the same time
- Suitable only for specialists in software development
Time & Material is probably the most transparent outsourcing model for customer-developer relationships, as customers can track work progress and access results almost instantly. This not only helps to quickly correct errors and inaccuracies of any kind, but also eliminates the risk of dissatisfaction with the end result (product or service provided). This engagement model is based on an hourly rate that is predefined before starting work. The customer then provides weekly or monthly payments depending on how much time the developers spent. Traditionally, regardless of its duration, T & M is viewed as a model for projects with a dynamic scope.
Before you even think about the choice of the time and material model, you have to objectively assess the level of your technical skills. Why? Simply because you are the only person who ensures the quality of the work done by the outsourcing team. If you are new to software development or your expertise in this area is too weak to conduct regular code reviews, we would not recommend adopting this model.
We also need to draw your attention to aspects of the time and material model such as project management and planning. With the T&M model, the customer actually takes on the role of the project manager and oversees the development process itself. The only other option is to hire a person who takes responsibility for planning activities and tracking progress.
This person has to be hired by the customer himself, since the development team is only responsible for technical problems. You must be able to identify project goals, goals, timeframes, resources and budget. Without strong project management skills, the work organized by T & M can become an annoying mess.
Another specialty of T & M is the fact that a team of developers is not limited to your project, so that developers can work on several projects at the same time. This brings with it the problem of prioritization since you cannot expect your project to always be of the highest importance. The need to jump from one project to another frequently leads to inaccurate deadlines and some technical inaccuracies in the finished product.
Don't conclude that time and material are good for nothing. That's not the case. This is actually a very useful framework for people with IT skills to work together, but who do not have time for specific tasks and need a "helping hand" to do them. That is, this particular model was developed for a type of collaboration where both parties have an adequate level of technological expertise. If your reasons for outsourcing software development are far from technical illiteracy, you are likely to get exactly what you paid for straight away.
Accept the time and material model if:
- You have appropriate expertise in software development.
- You can act as a project manager and technical manager for the outsourcing team.
- You are not bound by strict deadlines.
- You want the development process to be transparent.
- The budget for the project has no strict limits.
2. Special team model
- Perfect for non-IT people
- Full service team at your disposal
- Possibility for third parties to put together a team that perfectly suits your needs
- Possibility to completely delegate project management and planning to the outsourcing provider
- Low risk
- Not suitable for short-term projects
- The customer must follow the recruitment process
Dedicated Team (DT) is a model for collaboration when a customer reaches for the IT outsourcing company that acts as an intermediary between the customer and the workforce. The key difference between Time & Material and the dedicated team is that a customer with a DT model does neither the job of a project manager nor a technical manager. This means that the IT service provider takes full responsibility for the organization of the work process, from technology-related questions to salary approval and paid holidays. In short, the DT model is a solution for non-technical people who have a valuable idea but do not have the skills to do it. You don't need any IT expertise to adopt this model, other than the vision of how your project should work. The outsourcing company takes full responsibility for managing the software development workflow, while the customer can concentrate on other aspects: customer relationships, marketing, sales, etc. Often the dedicated team offers much more than just developers, but also QA engineers, Designers, content managers and other professionals needed to cover the scope of the project.
When it comes to involving the customer in the work process, the DT enables the collaboration to be designed in such a way that it corresponds to both parties. Although the outsourcing company can basically deliver the turnkey project according to your requirements, this does not mean that the customer should not or cannot be involved in the development. Customers who conduct face-to-face interviews are common among the vast majority of outsourcing companies so that they can be sure of the skills of anyone who will work on their projects in the future.
The customer can also easily see how the work is progressing. However, this task can also be delegated to the project manager commissioned by the provider or limited to monthly (or even less frequent) reports.
In order to start working, the customer must negotiate budget issues with the outsourcing company of their choice. Typically, the project owner sets an approximate monthly rate that he is willing to pay to each team member. Later this rate and its correlation with the requirements will define the allocation process. After the team is assembled, they start working on the project scope and organize their work depending on the software development method chosen. When it comes to working overtime, covering additional hours at work (if any) may also be included in the budget, although this also depends on the company's corporate policy and should be discussed in advance.
The adoption of the dedicated team model ensures a comprehensive work process in which many people are involved, whose competence has been demonstrated during the multi-stage recruitment process. This contractual basis offers unbeatable advantages such as an autonomous team of specialists who are exclusively dedicated to your project and do not have to worry about hardware, working conditions, career development of the staff, technology leaders, etc. As for the disadvantages, this model is not suitable for short-term projects (less than a year) due to the fact that the outsourcing company hires new employees based on customer requirements and these people expect long-term employment in the company.
Adopt a dedicated team model if:
- You have a great project idea, but you lack the skills to develop it.
- The approximate duration of your project is one year or more.
- You don't want to follow every step in the development process.
- You have the vision of your completed project, but you cannot define the requirements once and for all.
- You want to know exactly who you are working with and decide whether it is worth hiring someone.
- You want to save costs without sacrificing quality.
3. Fixed price model
- One-time payment contract
- Perfect for short deadlines
- Easy and uncomplicated
- Only fits the simplest projects
- High risk
The fixed price is the collaboration model that seems to be very attractive to newcomers to IT outsourcing. It looks as simple as one, two, three: you think about the project requirements, pass them on to the developers and wait for the work done. If you add a strictly estimated budget, you will find why most customers initially look for this model as the basis for their collaboration with developers – it appears to be perfect value for money. Well, it only does so until you start digging deeper.
While this model offers advantages such as ease of use, a clear budget estimate and fast delivery, its disadvantages may outweigh all advantages. The thing is that the fixed price is only suitable for the simplest projects where it is not possible to make mistakes or forget a small detail that you would like to include in the functional scope. The core of this model lies in pre-defined instructions. If you are absolutely sure that you have stable and no dynamic requirements for your project at all, you may be satisfied with the result after adopting the fixed price model.
Note that the predefined instructions can only be considered as actually predefined once you have discussed them with contractors. In practice, it turns out that even a simple discussion can reveal tons of potential pitfalls. The customer must also recognize that initial requirements limit the architecture of the future project. It may be technically impossible to add anything after the work is complete, regardless of your preference. The IT sector has a tiny share of projects that do not depend on constantly changing market requirements. If you are sure that your project is one of them, the fixed price may be the right choice for you. Otherwise, if you leave the room for possible changes and don't want to risk your budget, opt for the Dedicated Team or Time & Material contract.
Adopt fixed price model if:
- You have a very small project with the simplest instructions.
- You are 100% sure of the scope of the project.
- Your budget is fixed and you don't want to pay any additional fees.
There are no good or bad outsourcing engagement models, they are only suitable or unsuitable. Carefully evaluating the project and then choosing the right model for its completion are two steps a business owner should take on the path to a 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.