Fixed price model
The fixed price (also known as project based) model is perfect for small and medium scope projects, where requirements, specifications and schedules can be clearly defined before the start of the project development. If client cares more about the result and not the means in would be achieved with, this model is more than appropriate. After the client’s request, service provider analyzes project scope and complexity, provides project delivery schedule and fixed budget for the complete product development for client’s approval.
Agreement that appears in the result of discussion includes detailed specifics of the project, deliverables, milestones, predefined time frame and fixed budget. The fixed price model is low risk for the client, especially with the well-defined requirements and established project management methodologies. But after the agreement is concluded any changes in features or scope would result in a change in both price and schedule. So it is important to discuss every detail and make an estimate of the appropriate cost for the project delivery at the very beginning.
The service provider and client can agree on periodic payments. Agreement may specify what fixed part of the total cost client pays on achievement of each time interval / milestone / intermediate delivery during the project development process.
Model based on fixed time and fixed price is easy to understand and involves the following stages:
- Client sends an inquiry and project requirements.
- Service provider and client negotiate all the details.
- Service provider sends final proposal, billing and schedule.
- Both parties negotiate agreement and project development begins.
- Service provider gives fully implemented solution.
- Client approves the project.
Fixed price model demands a lot of professionalism on the part of service provider. Unpredicted changes and difficulties have to be undertaken without additional expenses and profit loses. Since all the risks of project implementation lie on the outsource company, they must ensure expert project management, efficient monitoring, quality assurance, and cost control.
It is important to understand when and where to use the Fixed price model to invest money into reasonable solution and decrease risk of dissatisfaction with the end result. Here there are several possible options when it is the best to use this model:
- If project result can be described by mutually acceptable and understandable terms and detalizations. Agreement of both parties on the acceptance criteria is crucial.
- If client’s supervision over the project implementation is either inappropriate or not practical.
- If requirements and methodologies are so specific that periodic deliverables can be expected at the agreed schedule.
- If final project features are so clear that during the development process there is a little place for changes or modifications.
Among the advantages of such fixed time and fixed price solution are:
- suited for small and medium sized projects;
- clear requirements and well-defined objectives and milestones;
- low risk for clients, since risk of successful completion is transferred mostly to service provider;
- relatively little client’s supervision is required;
- fixed price based on the project estimate before project delivery commencement;
- assurances that project will be completed within agreed budget and timeframe;
- service provider is highly motivated to be efficient and productive.
Some limitations that client might experience using current model:
- requires time and resources to fully and expertly define requirements, deliverables, and acceptance criteria;
- no control over the project delivery process, personnel and materials involved;
- developers rarely communicate directly with the clients and can’t discuss every issue, and use of waterfall approach makes it even harder to change anything after the approval of each development stage;
- possible quality issues with the final product, since project is managed only by the service provider;
- client has to pay separately for any significant deviations from the initial project requirements;
- low knowledge retention after the project is delivered, since development team can get dispersed after project completion.
Quintagroup works using Fixed price model for projects to guarantee that end product will be delivered on time, within budget and will correspond to the requirements defined in the agreement.