ODC Vs. Fixed-Price Contract: Which Outsourcing Model To Select?

In this era of technological advancement and heavy dependence on these technologies, increasingly more companies see the need for software development. More startups are in enormous need of web or mobile applications.

Post-identifying the need for these applications, these small to medium businesses recognize that they need more resources to execute building software. Many businesses are facing post-pandemic and pre-recession budgetary cutbacks, forcing them to consider outsourcing the project altogether.

However, choosing a suitable model is challenging with the various outsourcing models available. Offshore development centers and Fixed-Price contracting are two of the most popular models. Let’s discuss which might be suitable for your business structure.

Introduction to Offshore Development Centre & Fixed-Price Contract

ODC Model

Offshore Development Centre (ODC) is also known as the Time and Materials Model. In this model, payment reflects the time spent and the resources used within the timeframe. Apart from this cost aspect, an offshore development center is a strategic partnership that works as an extension of the client’s software team on an offshore location.

The team is under the constant guidance and supervision of a project manager. A dedicated offshore development center service procures the offshore needs of the team, including UI/UX designers, programmers, and quality assurance testers, among others. In this model, customers play a more significant role in developing solutions.

Fixed-Price Model

On the other hand, within a fixed-price contract, also known as a project-based contract, the model focuses on outsourcing all efforts to an entire team. The team ranges from – project managers to developers (mobile developers, UI/UX designers, frontend and backend developers, testers, manual QA, etc.), all of whom work on a specific project.

Post-client communications and a thorough understanding of the vision and direction of the project, they start to scope the details of the work and the project’s timeline. These projects use offshore agile development services, breaking the larger project into smaller goals. Each of these sections lasts two weeks, which is called a sprint.

The cost will also increase with any increase in the scope or timeline. These risks are why it’s necessary to clarify the project requirements before the development phase. The time and budget estimation for the project must be proper.

Benefits & Drawbacks of ODC Model

Benefits

Flexibility
One of the important advantages of opting for an offshore development center is the flexibility acquired in each development phase. After each phase, it’s possible to draw outcomes from them and analyze them against market tendencies. Doing so makes it possible to add or subtract from the execution process to meet client and customer expectations.

Due to the flexibility of working with the offshore development model, there’s some flexibility with the scope of the work, especially as projects depend on each previous phase of development. This directly affects the project launch and can be launched as and when both developers and clients are satisfied with the project.

Clients exercise full control of managing projects.

Within the dedicated offshore development center service model, project managers on the client end are responsible for managing the team process and deciding the project’s route.

Drawbacks

Minor Uncertainty of Deadlines & Budget
Within a project-based offshore development center model, there’s significant uncertainty regarding deadlines and budgets. Because the scope changes after each phase of development, it’s almost certain that the final cost of development will shoot off from the original estimation. The budget tends to go beyond expectations, and the project timeline’s uncertainty also affects the project’s deadline.

The major drawback is that clients are not certain how much they’ll be spending on deadlines and budgets. Therefore, the responsibility of tightening reigns on both budget and timelines falls under the project manager’s purview on the client’s end.

Quick Plug:The Netsmartz Offshore Development Centres worldwide cater to various technological needs and frameworks. Our dedicated offshore development agency is fully-staffed with teams with the market experience and skills required to uphold your business needs with finesse!

Benefits & Drawbacks of Fixed-Price Contract

Benefits

Minimal Management Efforts
Within a fixed-price contract model, the responsibility for the success of a project is passed from the client’s end to the offshoring team. In this model, no matter the scale of the problems during the project timeline, whether it’s human errors, changes in economic conditions, lack of personnel, or technological risks, it is the project manager on the offshore development team that takes charge of everything.

The customer’s contribution to the project is typically at the initial and final stages. Typically, very minimal management efforts are put into the project from the customer end.

Clarity on Project Milestones & Outcomes

This project type follows the Agile methodology, which helps clarify the project’s final output. It is essential to adhere to deadlines and milestones while keeping the scope frozen till the end of a sprint.

The final project acceptance is based on a pre-set number of criteria. Since this model has a time limit, outsourcing vendors tend to offer a warranty period as a token of confidence in the expected results of the work.

Drawbacks

High Cost

The fixed-price contract model estimates are far higher than other outsourcing models, such as dedicated offshore development centers.

The pricing is based on taking into consideration of all foreseeable risks. If the risks do not ensue, the price will be considered as the suppliers’ revenue.

However, if the project is brought to market before the expected delivery date, the price assessing the risks becomes the vendor’s premium. Given this, clients are still happy to move forward because these guidelines help them chalk out the budget required for the project in advance.

Impossible to Change

Within this model, there is next to NIL room for alteration to time and budget in each phase. Hence, the name Fixed-price contract. If there are any changes you’d suggest to the project due to market conditions or strategy changes, it would require another round of negotiations and payments. Due to all the risks involved, this model assumes conscientious preparation, planning, and coordinated monitoring.

Which Format: Fixed-Price Outsourcing Model or ODC is Better for Your Business?

As seen above, each of these formats of outsourcing has pros and cons, which only makes the decision-making process tedious, yet worth the time spent on them.

Our expert take:

If your team is certain of the project’s scope and there is a budget limit, the more suitable plan to choose would be going with the Fixed-price contract model. On the other hand, if your team doesn’t clearly understand what the project may entail, the offshore development center (ODC) model may be more suited to your needs. If you require flexibility and expect requirements to change frequently, then a dedicated offshore development center model is perfect for your business needs.
If you’re unsure what the research process entails when choosing the right offshore development center for your business, here’s everything you need to know to choose one.

When to Choose an Offshore Development Center Model?

The ODC format is most suitable when the scenario is:

You Need Special Talents

When your team needs a supplement of essential personnel with unique expertise, ODC is the way to approach a solution to your needs. Suppose a specific form of project requirements requires talent with a specific set of expertise unavailable in the area where your business is located. In that case, you may want to opt for an ODC model business model. This way, you can source the right personnel for your team offshore.

You Need to Gain New Knowledge.

Do you have a junior staff within your team that you’re trying to bring up to par with role expectations? Are you expecting to get them to learn on the job? Exposing your junior staff to an offshore development team is a good way to acclimatize junior staff and get them up to speed.

Exercise Full Team Control

Suppose your company deals with software development requiring compliance with security, production change control, or security. In that case, the offshore development center model is the ideal business model to follow. It allows you full control of the offshore team integrated with your business needs. It also adds value in terms of speed and simplicity to the completion of the project.

Exercise Control on Team Culture

In case you need to closely manage the team, the ODC format is much situated to your needs as it provides control over setting a common team culture that can help you manage the offshore team in a better way.

Exercise Rapid Change in Staffing

If your team needs a large staffing change for outsourced software development, the best way to deal with such a change is to opt for a dedicated software development center instead of hiring more in-house.

Doing so reduces the risk and management overload of hiring in-house. This also encourages ownership of projects and significantly controls the project’s cost.

Conclusively, these are the major reasons that more and more companies choose offshore development companies to work with rather than a fixed-price contract model. However, if a fixed-price model best suits your business needs, or even opt for offshore development centers, then Netsmartz offers both of these services. Feel free to book an appointment today and find out which plan best fits your needs. Let’s discuss it!

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