A Fixed-price Project or ODC? Which is the Smarter Investment?
If you’re a business owner who is looking to outsource software development, there are two popular pricing models you’ll come across in most software development centers. Those are the fixed price model and ODC contract. It might be confusing to choose which one to go for if this is the first time you hear about it. Don’t worry. This article will help you clear everything out.
What is a fixed price model?
Fixed price is a model in custom software development. A fixed-price contract is based on an estimate of the amount of work that needs to be done. Therefore, in a fixed price software development project, scope, time, and cost are all fixed.
First, project requirements need to be clarified by the client to define the scope of work. Then the contractor will calculate the price and timeframe base on the given information. Wireframes also need to be created to help the development team figure out the hours necessary to implement all features. The contractor will track the development process, and the team maximizes the precision of their estimates.
In a fixed price project, it’s crucial to clarify everything before the actual development to provide a precise estimation of the software product. By doing so, the fixed price model can guarantee that the software will be done and delivered within a specific timeframe and budget.
The type of project that would be a perfect match with the fixed price model:
- Clear requirements;
- Determined deadlines;
- Limited or fixed budget;
- MVPs (Minimum Viable Products);
- Small projects with a limited project scope.
What is ODC in software development?
ODC is a common term that is short for Offshore Development Center. This outsourcing model is also called Time and Material (T&M). Based on its name, you can clearly see the differences between a fixed-price project and an ODC project.
In an ODC model, the price you pay reflects the actual time spent by developers working on the project and other people like project managers, team leads, etc., the resources used in the process, their hourly rates, and other components.
In other words, the offshore software development team will work as an extension of the client’s software team. Customers are charged for the number of hours spent on a specific project, plus costs of materials.
When can a business take advantage of an ODC contract:
- Long-term projects;
- Dynamic requirements;
- Unclear project;
- Willingness to manage the project;
- Require flexibility to modify the scope or vary the workloads.
What are the main differences between ODC and Fixed Price Model?
|Offshore Development Center||Fixed Price Model|
|Client||Can be suitable for any kinds of client, from software companies, end customers, groups, to individuals, etc.||The client needs to have some experience in software development to have an effective discussion on the technical aspects.|
|Requirement Specification||The requirements can be finalized after starting and gradually perfected throughout the development process.||All the requirements are cleared, discussed, and agreed upon at the first step of the process.|
|Project Startup Time||The project immediately starts as soon as the client and development team are both agree on the resources involved and contract terms.||An internal assessment process needs to be done before kicking off the project. This process involving prudent feasibility analysis, requirements comprehension, workload estimation, etc.|
|Total Price||The client can control the total price of the monthly fee by flexibly adjusting the ODC team||An accurate quotation is provided at the beginning of the software development project. The final price won’t be much different from the initial estimation as long as the requirements stay the same.|
|Management Level||Allow clients to monitor progress as developers present reports on work accomplished.||Little to no management. All project details are defined in the contract, so project management can be passed down to the project manager. No excessive supervision is required on the part of the client.|
|Requirements Change||Clients can freely change the resources’ work content, or adjust the priority of different tasks whenever they want in the development lifecycle.||In the development lifecycle, if requirements are changed, the development team might need to re-estimate the total workload, adjust or remake the project plan, re-negotiate the cost for the requirements change, add or remake the contract, etc.|
|Delivery Deadlines||Uncertain deadlines. Any adjustments to the project can postpone the final release and the project can become overdue.||Strict deadlines because a clear plan and definite delivery timeframes have been agreed on at the very first step.|
|Approaching Method||Suitable when using Agile project management.||More preferable with traditional project management methodologies like the waterfall model.|
Choosing Fixed Price or ODC?
Each model has its own advantages as well as disadvantages that would be suitable for different kinds of projects. It depends on both your needs and the software house’s approach to software development.
If the customer has a clear understanding of their project and a limited budget, then a fixed-price model should be used. On the other hand, if the project is quite flexible and requirements tend to change frequently, then the ODC model would be a better choice.
However, in reality, it is undeniable that a lot of software development companies are moving away from fixed-price contracts and towards the time and material approach. An ODC model offers greater flexibility and a better end product compared to the fixed price model.
In short, customers should decide whether they prefer certainty, or the prospect of lower costs when the work can be completed efficiently, and select the model that works best and is most profitable to your business.