IT and software pricing models have evolved today. Rise of demand and colossal emphasis on quality of solutions; entire world’s reliance on software and tech as well as many other factors could not have passed unnoticed. Same goes for outsourcing.
The key it outsourcing pricing models
There are three primary pricing models in IT outsourcing. They are also known as business models. Each is different and has its own strong sides and weaknesses. These business models are different and tailored to meet different tasks and requirements. Each of them fits certain types and styles of development. They are:
- Fixed price model
- Time and materials model
- Dedicated team model
Fixed price model perfectly fits small and medium sized projects with clearly-stated and well-defined requirements. The service provider takes into account the scope, requirements, and time framework of the project. The result here is more important than the resources used for achieving it. It reduces risks for the client since the service provider takes all the responsibility for completing the project.
The benefits of fixed time and fixed price:
- A perfect fit for small and medium scope projects
- Fixed price based on the estimate of the project delivered before it starts
- Well-defined requirements, objectives, milestones, fixed timeframe
- Reduced risks for clients
- The project is managed by the service provider
- Time and money are agreed on before the project kicks off
- Client has to incur separate costs for all significant changes made into the initial requirements
- No supervision over the process of delivering the project
- Less flexible management
- Lack of communication with the client
- Possible quality problems or discrepancies
Time and material model is more flexible. It gives more control over the project production process and it is suited for long-term projects.
Time and material model is preferred if there is no full perspective on how the project results will look and the requirements are not clear enough. It gives more flexibility and more direct control.
The client takes active part in negotiating the process and introducing the necessary changes on the run, and shares the responsibility with the service provider. It is perfectly suited for long-term projects.
- Budget can be negotiated on the run
- Prioritizing tasks
- Opportunity to pay only for the work done and to pay in parts
- Client's control over the project
- Enhanced flexibility
- No strictly defined deadlines
- The project can cost more than is initially estimated
- The budget is subject to less control
In the dedicated team model, an outsourcing company allocates specialists and resources for a specific project.
Suited for long-term projects with not clearly defined requirements, however, the budget can be easily estimated and predicted. It suits both technical and non-technical companies.
Client pays the service provider a single amount of money monthly (based on the monthly salary of the team members and provider's fee).
- The team works exclusively on a client's project. This ensures full commitment of each team and each team member to a specific project
- Considerable flexibility
- Frequent communication with the client
- Client has full control over the project
- Changes and enhancements are welcome
- The client is provided with experts with appropriate knowledge and experience
- Client must participate in management of the dedicated team
- Clients will have to pay for the idle time
- Not efficient for short-term projects
The one-size-fits-all approach is not a good choice for IT outsourcing. Each pricing model satisfies specific purposes and fits specific types of projects. Carefully consider all pros and cons of each of them before making the final decision.
Unique elements of outsourcing
- Clarity of clients’ goals. The most effective way to get where you are going is to know your destination and carefully plan your way towards it, step by step. Goals should be clear and well-defined. To ensure the product meets the client's demands, a clear understanding of the ultimate business objectives, key milestones, quality criteria, and target results is a necessity. The vendor's performance should be monitored and measured using those accurate criteria and notches.
- Finding the right outsourcing partner, dedicated to its work and passionate about quality outsourcing. Selecting the outsourcing vendor that meets all your criteria and fits your specific goals is the foundation of your future successful partnership. If you are striving for viable project results, thorough and meticulous vendor selection is a must.
- Interaction-centric approach. IT outsourcing is not only about processes and products. It is mostly about communication and interaction. Effective communication and negotiation between the client’s and provider’s sides throughout the whole project implementation is an indispensable part of successful outsourcing and getting exactly what you expect.
- Experience in managing outsourcing projects. This will ensure effective planning and overcoming unforeseeable challenges. However, if you are willing to outsource but you feel that your experience in managing outsourced projects is not adequate, and you have too many doubts and questions, it is highly recommended that you cooperate with a pro vendor with a solid customer track record and an immaculate reputation.
- Overcoming internal resistance. The benefits of outsourcing should be explained and made understandable to the in-house staff to avoid resistance from inside the company.
What is the right way of outsourcing?
Outsourcing your IT processes is challenging since IT processes are often incorporated into business operations, and transitioning them seamlessly may be hard. Make sure your potential outsourcing provider has enough expertise and a good transition plan. Another challenge is that the success of IT outsourcing rides first of all on successful communication of your vision and your goals. And if communication fails, the vision gets distorted, and the results don’t live up to clients’ expectations. So you need to ensure that the communication runs smoothly and you are on the same page.
The foundation of getting the results you are actually looking for is to find the right partner, fitting both your purposes and budget, as well as sharing your vision.
Learn about the company’s clients, and verify the info about available resources and capabilities. Talk to people who will be actually doing the job, and discuss the legal aspects.
Those are some of the key ingredients of a good outsourcing recipe.
The ethics of outsourcing
Outsourcing is a type of cooperation, and it calls for an appropriate level of ethics, ethics of communication, and business partnership.
- The implication of cultural differences. Outsourcing usually involves different countries, with their own traditions and customs. And those diversities can prevent you from effective and successful communication, which is the foundation of viable cooperation. Choose the outsourcing partner well, ensuring there is either no or very little communication and culture gap.
- Quality of services. Every company with a good reputation provides high quality products and services. In fact, quality is a visiting card of every respectful business, and outsourcing providers shouldn’t be an exception.
- Security issues. Your potential outsourcing partner should provide you with the details on how they handle confidential information. Otherwise, you’d better not cooperate with such a company, since there are no warranties that such cooperation won’t get you into trouble.
Cooking outsourcing in an attempt to form the perfect dish may seem hard from the start, but once you put your finger on it as a business owner – consider yourself and your project covered. And with a dream team server right to you.