A couple of questions every company that outsources for the first time are, What will be the cost benefit ? and Will the work proceed smoothly ?
Fortunately both the answers are very positive, & that's why the number of companies outsourcing is increasing very fast.
What are the benefits of IT outsourcing models?
IT Outsourcing works on a set of rules that are known as IT Outsourcing Models. Let’s find out why are these useful?
Cost efficiency
On-demand services – Bespoke
Fewer Overheads
Core area focus
Saves technology and infrastructure
Builds strategic partnerships with agencies
Saves time and money on expensive recruitment processes
It helps companies to increase the operational control required to expand
It helps businesses in managing risks effectively
Let's see what are the pricing models & how much control on cost, time & effort each model provides.
1. Time and Materials
T&M, short for Time and Materials, is a pricing model in which the client only covers the hours that developers spend working on the project.
Within this model, the client pays only for the hours developers actually spend working on the project. T&M is the most common contract
type used in project outsourcing. This model suits for a project where software requirements are likely to change frequently or as per market changes.
2. Fixed Price
This model provides the highest level of control on cost & timeline. So this is preferred by many clients. In Fixed Price contract, the vendor completes the project within fixed
time and budget. The client cannot change any specifications and requirements. Fixed-price contracts are a single-sum agreement. The development company is fully responsible
for completing the project and meeting all the client’s requirements within the agreed timeframe & cost. This model suits the best for SaaS applications where software milestones don't change.
3. Blended Fixed cost Model:
The cost & time for the entire project is ascertained & agreed upon by client & development company. Later, the milestones of the projects are separated & transformed into small Fixed cost projects. This provides tremendous flexibility. There is a lot of room to make changes in the requirements.At the same time, as a set of milestones has fixed cost & timeline associated with it, the client does not loose his control. SO this
method gives the advantages of Fixed cost model with additional room to make changes. This model helps when you hire a new developer whom you can't trust blindly & you want to have better control.
Omni-Bridge provides tool that automates the calculation of project cost on fixed cost or even blended fixed cost model too. You just need to select
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4. Cost Plus
Here, you pay the developer's monthly salary & a fixed fee for your vendor. The local vendor's fee includes Recruitment expenses & payroll,
office infrastructure, fees, support staff, and office infrastructure including workstations etc. This model suits to clients who wish to hire developers with multiple different skills.
It also suits when client is outsourcing in a new country & is not confident about the work culture & day to day difficulties in recruitment to production work cycle.
5. Rate Card
Billed each month, the rate card payment model allows clients to cover the monthly rates for developers involved in the project. Using this model, you save up time on recruiting
necessary developers and go with the ones pre-hired by the vendor. By Rate Card agreement, the vendor gives you a list of monthly rates for the developers who will be involved in your project, and bills you on a
monthly basis. This model suits to clients who wish to hire developers with various different skillsets & the project is such that help on additional technologies may be needed as the work progresses.
Summary
We’ve mentioned the most popular IT outsourcing engagement models; you can make use of any of them which fits best for your business. Remember, outsourcing is a partnership, and no party should enter into the debate trying to take advantage of the other. However, communicating your expectations obviously and selecting the right pricing model can go a long way to attaining success.