How to Choose the Right Outsourcing Engagement Model [2022]

Choosing an engagement model will determine half the success of your outsourcing endeavor. There are three major outsourcing engagement models you can choose from:

Each of these engagement models has its own pros and cons that make them suitable for diverse businesses and their software development projects.

That said, there is no single engagement model that works for all.

It is necessary to choose one that will serve the business needs in a bespoke fashion.

It also requires a deeper understanding of the engagement models. This is exactly what this blog is trying to address.

Let’s take a quick look at the three engagement models and their pros and cons so that you can make an informed decision next time around when a project needs to be outsourced.

1. Dedicated Team

As the name suggests the dedicated team is hiring a team of software developers who can work exclusively for the project.

The client can select the developers who can work on the project by reviewing their resumes and past working experiences.

In addition to the developers, requests can also be made for project managers, program managers, QA testers, and allied services necessary for the project.

The billing would be done based on the manhours spent by each of the team members.

The dedicated team engagement model is ideal, if:

  • You want certainty in the way the team works and hence want the same person to be a part of it
  • The project is a long-term one that spans more than a year
  • You want accessibility to a specific tech stack that can be provided only by a handpicked team
  • You want the project to have a definite timeline and ensure that the processes flow from one personnel/team to another smoothly

Pros of the Dedicated Team Model

1. Cost-effective

The dedicated team model is cost-effective compared to hiring a team and managing them on your payroll.

2. Focused team

The project team is focused on the defined objectives and outcomes of the project. The focus helps in ironing out unnecessary activities and directing all efforts towards project completion.

3. Faster deployments

Since the dedicated team is composed of experts from various backgrounds, deployments become faster and efficient.

Challenges of the Dedicated Team Model

A quick look at some of the challenges and plausible solutions to negate these.

1. Specific to certain project types

The dedicated team model works really well only for specific project types that require a diverse skill set for timely task completion. It is ideal for long-term projects, however, projects spanning a quarter or two can also be accommodated with this model.

Engage an outsourcing partner who has a large talent pool or has the ability to scale resources dynamically according to project requirements.

2. Team working style

It is not possible to dictate the working style of the outsourcing team. They might have their own internal processes and collaboration methods that may not be easy to change.

Solution:

Set expectations regarding working style, reporting timelines, and quality at the project kickoff stage itself.

Wherever possible, document the working style so that the outsourcing agency can carry it forward even when individual team members are replaced during the course of the project.

2. Fixed-Price

In any software development project, the cost is one aspect that the client company is keen on before engaging an outsourcing company. As a default, most clients want to keep their costs to a bare minimum and also within the budget approved by all stakeholders.

The fixed-price engagement model helps achieve that objective. In this model, the project value is determined and agreed upon before the project is signed.

This requires communicating all the requirements, deliverables, and other factors that might affect the cost to the outsourcing agent.

All cost items are made part of a single bill that defines the scope of the work. It is difficult to change the scope of work during the course of the project since the budget is drawn based on definite deliverables.

The fixed-price engagement model is ideal, when:

  • The deliverables can be defined to the last detail well before the project commencement
  • The project costs can be ascertained with reasonable certainty and are not expected to change
  • The project has specific outcomes which are not expected to change in due course of time

Pros of the Fixed-Price Model

1. Definite budget

The project commences only after the budget is determined and agreed upon by both he parties. The client is well aware of the budget which remains definite and constant until the completion of the project.

2. Assured deliverables

The scope of work is well-defined and involves no change until the project’s completion. Also, the agreement can bake in penalties for delayed deliverables to safeguard the client’s interests.

3. Clear workflow

The client and the outsourcing company both are in sync as to how work will flow and how it will progress across the timeline.

Challenges of the fixed-price model in software development outsourcing

4. Rigid project scope

The certainty that the fixed-price model offers is also its disadvantage.

The project scope is rigid with little room for change or alterations. Any changes required in the project scope would have to be made at extra cost and also at the expense of delayed timelines.

5. Extra costs are chargeable

Most software development companies that take up software projects based on fixed-price models charge extra for extra work.

The extra work committed and performed which does not form part of the original project scope requires assigning new resources for which costs are incurred.

3. Time and Material

Under this model, a software scenario, the man-hours spent by the software developers, QA professionals, and project managers along with the materials used in the project will be charged to the client.

This model gives adequate flexibility to the project development as personnel and materials can be sourced according to the changing requirements of the project. As a result, the project scope is also not well-defined or agreed upon in the beginning.

The time and material engagement model is ideal when:

  • The project is of a long-term nature and takes form and shape with time.
  • The project requires flexibility in terms of resources and timelines
  • When the project is expected to have changed throughout the course of the project

Pros of the Time and Material Model

1. Adaptive project management

The biggest draw of the time and material model is that it can adapt to the changing requirements of the project. This gives the client maximum flexibility as they are able to get IT projects done according to dynamic business requirements.

2. Use of latest tech stack

Under this model, there is no lock-in time or material to be used. This means that it is always possible to choose the most recent tech stack that can give the business an upper hand in the years to come.

3. Nimble project deliverables

The time and material model can be used when the project deliverables are short and time-sensitive in nature. They help the business to accomplish quick wins through nimble project deliverables.

Challenges of the Time and Material Model

1. Uncertain budget

Before the project commencement or even during the course of the project, it is not possible to ascertain the project cost with certainty. This could be a downside for enterprises that plan their budgets with certainty.

Solution:

If it is difficult to narrow down the budget with details, try arriving at a ballpark figure or budget threshold. This would ensure that the outsourcing agency maintains the expenses without expected budget limits.

2. Unpredictable timelines

Since deliverables and their timelines are not forecasted and agreed upon beforehand, there could be delays. This causes the timeline to be fuzzy and dependent on the outsourcing company.

Solution:

Specify in periods of time like weeks, months, quarters, or years within which the project has to be completed. Individual milestones that match the timeline can then be easily created.

3. Quality concerns

A lack of agreement as to what materials and what kind of personnel are to be used for the project could lead to quality concerns. The code being shipped will have to be tested rigorously to ensure the highest quality standards.

Solution:

Include a contract clause that keeps the outsourcing agency responsible for delivering high-quality output that works and is expected as a benchmark in the industry. Wherever possible include time and material specifications to avoid disagreements.

Which is the Ideal Engagement Model for Your Business

As mentioned earlier, there is no engagement model that suits all business needs.

It changes from business to business and from project to project. Each engagement model has its own pros and cons that one must evaluate before starting the project.

The goal should be to keep the risk as low as possible so that the project outcome can be achieved with maximum efficiency.

Originally published at https://www.perfomatix.com on May 30, 2022.

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Perfomatix is your trusted technology partner for Software Product Engineering Services.

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