If you’re a business owner looking to outsource software development, you’ll come across two popular pricing models. You might not know whether to choose a fixed-price vs. ODC model. Don’t worry. This article will help you clear everything out.
What is a fixed-price model?
Fixed price is a custom software development model based on an estimate of the amount of work needed. Therefore, scope, time, and cost are all fixed in a fixed-price model.
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 based on the 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 will maximize the precision of their estimates.
In the fixed-price model, clarifying everything before the actual development is crucial to estimate the software product precisely. 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 see the differences between a fixed-price project and an ODC project.
In this model, the price you pay reflects the 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 be an extension of the client’s software team. Customers are charged for the number of hours spent on a specific project plus the 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.
Fixed Price Vs. ODC model comparison
The comparison table below will give you the clearest view of offshore software development: What are the main differences between the ODC vs. Fixed Price Model?
|Offshore Development Center||Fixed Price Model|
|Client||It can be suitable for any client, from software companies, end customers, and groups, individuals, etc.||The client needs software development experience to discuss the technical aspects effectively.|
|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 starts immediately as soon as the client and development team agree on the resources and contract terms.||An internal assessment process needs to be done before kicking off the project. This process involves 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 that 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 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 to traditional project management methodologies like the waterfall model.|
Why offshore software development works well?
Each model has its own advantages as well as disadvantages that would be suitable for different kinds of projects. Choosing a fixed-price project or ODC model depends on both your needs and the company’s approach to software development.
A fixed-price model should be used if the customer clearly understands their project and has a limited budget. 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, it is undeniable that many 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 than the fixed-price model.
In short, You should decide whether they prefer certainty or the prospect of lower costs when the work can be completed efficiently and select the best and most profitable model for your business.
As CEO of Techvify, a top-class software outsourcing company based in Vietnam, I focus on pursuing my passion for digital innovation. Understanding the customer’s pain points to consolidate, manage and harvest with the most satisfactory results is what brings the project to success.