Oct 2, 2020, Consulting

Engagement models with offshore IT agencies

iteo team
When you finally decide to develop an app for your business, you might wonder how much it will cost. And it’s not that easy to tell at the beginning. You need to make a decision that will influence the budget and the workflow of your team – choose the engagement model perfect for your needs. We explain the most common ones.

Basically, engagement models are types of contracts used in offshore development. They determine what you will pay for when hiring mobile app developers. They also describe atypical situations like a need for a sudden direction change in the project that can result in delays and longer time-to-market.

The type of engagement model you choose depends on your needs, the budget you have, the number and complexity of the features, and other details of the project. Don’t worry, your digital agency will present all options you can choose from and you will be able to make a decision based on your preferences.

So what can you pick?

Dedicated team

In the dedicated team model, you pay monthly fees that equal the hourly rates of all developers you hired. The idea here is to optimize the production process to make sure the delivery is within the budget, time, and scope of the project. We always start by familiarizing ourselves with client’s expectations and goals, to make sure our dedicated squad will be able to fulfill them.

Our developers are becoming your temporary employees dedicated to a project. They can either work remotely or visit the company that hired them to be on-site during the main project management activities. Speaking of PMs, they are usually a part of the product owner’s company and they coordinate the production for both internal team and external additions.

The company that decides to outsource developers in a Dedicated Hiring model gains full control over the project, which is great when the scope is extensive and somewhat not entirely determined. What’s beneficial about external developers is that all the administrative matters are handled by their company, so it reduces the burden of such duties for the employer.

This model is also quite flexible, as cooperation with an offshore external agency allows the partner to add more team members or change tasks when the project evolves. Having a dedicated developer means they will get to know the product better and their work will be more insightful. At the same time, the hiring party needs to have excellent management skills and provide technical resources to handle various employees.

Team enhancement

If you have an internal team and you just need an extension, this model will be the best option for you. Sometimes outsourcing means that you need to hire developers that have particular skills. Adding new members to your in-house team means a lot of time spent on recruiting them, onboarding, and then you need to pay their salaries. If you don’t need them full-time, it’s an unnecessary cost. It is better to find an offshore company that will lend you their employees to complete certain tasks.

No matter what type of unusual skill you need, you should enhance your team with an external employee if you need something extraordinary to be done. It will be much more efficient than hiring an entirely new worker at your own company.

What about the pricing?

Both engagement types are offered in two different price models: Fixed Price and Time & Material. Let’s take a look at their characteristics.

Fixed Price model

It requires longer preparations as you need to define the exact scope of the project with all the functionalities that are going to be developed. Then, you pay the fixed amount of money and the work begins.

The Fixed Price model is not too flexible, because the cost and workflow are pre-established and changing them could disturb the initial plan which requires additional funds. This model is better for short-term projects with detailed goals and predictable tasks. The main point here is that the idea needs to be as concrete as possible – because there won’t be too much space for changes later on. Also, use the Fixed Price model when you want to test the software development company you consider to work with.

The most significant benefit is the fact that you pay the full amount beforehand – so you don’t need to worry about changing the cost of app development. The pre-production phase is also quite advantageous, as it allows both parties to clearly state their expectations and outline all the details of the project at the very beginning.

On the other hand, a Fixed Price model project is not flexible at all and any problems with the tasks in the scope or sudden changes in the market will result in additional costs.

Time and Material model

This model is great for progressive projects that are predicted to scale and expand. As you might conclude from the name, Time and Material model means you pay for resources that your app development team uses. At the beginning of the collaboration you agree upon a certain hourly rate and then you need to pay what you are billed for.

This is the most common model in digital agencies that use Agile and Scrum methodologies in their project management. It’s perfect for clients who are not sure about all the details of their product yet and want it to evolve with the process. It’s also great for a long-term commitment that requires many stages to be completed.

Unlike the Fixed Price model, Time and Material allows both sides to freely communicate as they can put these hours on the bill. Sprints, calls, and workshops are necessary for such projects to make sure everything is progressing at the right pace. Contact between the product owner and the team also allows them to discuss changes that suddenly need to be introduced.

The main drawback of the Time and Material model is the fact that costs can quickly escalate if we change the scope of the project constantly or introduce new components all the time. To avoid this kind of situation, we should determine as many details as possible in the early stage of the project. Taking advantage of flexibility should be based on common sense.

Combination of both

It’s quite common that the two pricing models are combined. A project starts with a Fixed Price and then, when there’s a need for some alterations, all the changes are evaluated in Time and Material. It’s usually most optimal and convenient, but generally depends on the client’s needs, goals, and the project itself.

Which engagament model should you choose?

If you are looking for a reliable IT partner, we can offer our support in turning your idea into a robust mobile or web app whatever type of cooperation you’re interested in. We can help choose the most appropriate and scalable engagement model adjusting it to the project’s and company’s requirements.  Contact us and we will show you what are our capabilities in terms of software development. You surely won’t regret it.