When outsourcing, customers typically take the...
Fixed Price contract: pros and cons of being inflexibleOk, you’ve got an idea for a mobile game & consider looking for an offshore company. As a customer, you definitely care about the outcome of your project – and not the means by which the goal is achieved. Well, the Fixed Price (FP) model might work for you!
Here’s what you should do:
- Contact a reliable vendor and provide him with clear project requirements (you know exactly what your app does, how it functions and what features it must possess);
- You discuss all the project details, and the vendor comes up with a proposal (including the expected schedule and billing);
- Once again, you negotiate every aspect of your possible partnership. If you agree on a budget & time frame, the development process begins;
- The project scope is broken down into several stages (iterations) with certain goals and deadlines. A typical iteration lasts for 2 weeks;
- You review & approve prototypes at the end of every iteration;
- The vendor delivers your long-awaited application.
- Apart from iteration approval, the dev process requires little to no supervision (everything is well-documented & agreed on beforehand);
- You know what to expect (for the same reason);
- You can predict the cost of outsourcing software development (you’ve negotiated the price, and it stays the same unless you enhance your app with extra features).
Fixed Price project and its downsides
- Waterfall methodology. Waterfall (or the traditional approach to software development) has been around since 1970. A typical FP waterfall project involves 5 stages: requirements analysis, design, implementation, testing and, finally, product release. It means that you (or the company you’ve addressed) have to prepare a detailed project plan before a single line of code is written. Also, you cannot make any changes to the contract unless you sign a supplementary agreement (and it impacts the whole product development cycle, to say nothing of extra costs). If there’s an error, your vendor cannot just go back to the bug-free stage and fix it (there are deadlines to meet, after all). The methodology saves testing for last, and you’ll be surprised to learn how many mistakes it will expose. Sure, the vendor will debug the soft at his expense, but your project will run over time anyway (just like 7% of all IT projects do). And what if your competitors are working on a similar application and the market window for the product is very tight?
- Comprehensive project requirements. The whole Fixed Price thing is based on the assumption that a client will come up with a through technical specification of a project. For a non-tech guy who’s been struck with a brilliant app idea, it takes an MVP and months of research to write a decent requirements document (again, you’re losing time). You can of course ask an outsourcing company to prepare the document for you – after all, vendors possess the necessary expertise and human resources to get things done a lot faster. Expect no charity, though. For large (and long-term) IT outsourcing projects the cost of requirements analysis sometimes exceeds $ 10 thousand;
- Lack of management & direct communication. Even if you choose between more flexible IT software outsourcing pricing models (Time & Material or Dedicated Team), there’s going to be a lack of direct communication between you and your partner. FP a priori involves no management on your side. That’s right, you approve iterations and may be hands-on the project to some extent; yet, it’s the vendor who takes the entire responsibility for cost control, quality assurance and management. And he’s not sitting in the next room after all. When it comes to outsourcing, keeping in touch with your development team is often more important than clear requirements. In fact, poor communication is the reason why 28% of IT projects fail. There also cultural differences which attribute to 16% of outsourcing failures. Are you sure Fixed Price is what you need?