February 21, 2020

Сustom Software Development Pricing: Fixed-budget and Scope-controlled Models Review

Until recently when it came to software development pricing, the two most popular models were the Fixed Price and Time and Material. Each of the approaches has its welfares and weaknesses. We have already dealt with the peculiarities of each pricing scheme before, but a new approach to development projects pricing has emerged recently.

Today we are going to refresh your understanding of the old models and to go in more detail as to the new approach — fixed budget, scope controlled. We are sure every client coming with a software development project should make an informed choice of the development cost. Obviously, the estimation is always based on the information provided by the client and the latter in his turn should have a clear picture of how the product will look like after it’s made. So the more details are discussed at the very beginning, the more accurate and less risky the estimation is.

Let’s turn back to the custom app development pricing models.

Fixed price approach

This model often appeals to inexperienced customers. They are sure they know what they need, besides they are able to plan their budget being aware of the project cost from the very beginning. The budget is set during the negotiations and the precise scope of work and development schedule as well.

The financial risks in such a case lie on the development company involved in the project since it’s almost impossible to figure out the detailed specification before the work starts. At times a fixed price contract may result in crafting the product, which fails to meet the needs of a target audience or requires significant modifications in the end. This may be the result of the attempt to fix the scope upfront.

Time and material approach

The Time and materials contract allows the developers to work without regard to financial constraints. Though the preliminary estimations are made, the time of work is tracked and paid then.

Such an approach allows altering the scope of the project in the process of work, however, the financial risk is on the client. On the one hand, it’s difficult for him to have control over the process, follow what is really being delivered and whether it exceeds the estimates. On the other hand (though we don’t like to tell it) an unprincipled contractor may work ineffectively, knowing he is paid for the time spent without regard to what is produced.

Still, time and material pricing often makes better products. The tasks can be prioritized, the scope of work altered and improvements implemented. But, there is one catch, as the project specification changes, the cost of development changes accordingly.

Fixed-budget, scope-controlled approach to pricing

Now we’d like to speak about a relatively young pricing model. Nevertheless, it’s already accepted as a preferred collaborative model by some development companies.

The obvious advantage of such an approach is the possibility to craft better products with respect to budget discipline. The fixed-budget, scope-controlled strategy presupposes close cooperation with a client. Firstly a good understanding of the project is aimed to be received and then the schedule, the priorities, and the budget are set jointly. However, though the budget of the project is set, the scope of work can be altered in the process of work (within the set timetable) through task prioritizing and not only.

The work runs in short iterations and that’s why changing assumptions and estimations can be adjusted without much waste of time or budget. Weekly meetings with the client allow monitoring the condition of the project from the financial point of view as well as its progress and the results achieved. As the project proceeds, there are plenty of opportunities to make sure it goes the right direction and getting the new information, the parties can take advantage of it and suggest new features, functionality or changes to the project scope.

In the course of work, the complexity of certain features can be reduced, less essential functionality omitted or transferred to a newer version to fit in the budget. Such cooperation makes the client feel comfortable and allows influence on the development of the product. The risks are split between both parties and this is the additional advantage of this pricing method.

Making an informed choice

The key to choosing an efficient project pricing model is information and to make the right decision, a client should ask himself the following questions.

Is it really clear to me what I want to accomplish?

It’s reasonable that the client tries to acquire proper awareness of the project he undertakes on both business and technical levels. It will help to get a more accurate estimation of the time and effort required. However, flexibility is always helpful. The development company is always able to offer the decision which works better in the situation.

Am I ready for taking risks?

Here it’s important to define what you are most concerned with — time, budget, or quality. Depending on the answer to this question, the client can choose the approach, which suits him and his needs best.

Conclusion

As a development company with a decade of experience behind our back and almost a hundred and a half projects fulfilled, we see much potential in the new pricing model and are going to implement in our work. Reasonable and fair risk distribution, focus on product quality and flexibility are what should be valued by both parties and such an approach copes perfectly with the challenge.