Why clients prefer Time and Material Billing over Fixed Project Cost Model

As a relentless proponent of the Agile methodology in software development, the time and material model has a natural blend to our work practices. We like the flexibility it brings to a project development environment, and what’s even more remarkable – customers prefer it too.

The inherent inflexibility of Fixed Price Model

Although the FPM carries apparent disadvantages, it is a viable option given the right circumstances. Most small projects have a clear view of what’s ahead, and required resources can quickly enter an accurate preliminary estimate. The course is set, and it is a straightforward course, with well-defined start and finish points.
The straightforward approach of FPM has little flexibility, but the lower risk for clients guarantees the desired outcome. The aim is not high, and therefore, possible failures carry a low level of threat. The budget is also clearly defined since no further enhancements are expected, especially not during mid-development and onwards.

What is Time and Material (T&M) Pricing model?

T&M brings more focus on the transparency of total project cost. A fixed price model reduces the chances of unexpected extra costs. Still, entrepreneurs prefer to get the job done, then continuously measure the cost/gain ratio when new offers must be compared and considered. Time and material are what the builders of the great Pyramids most likely had high on their agenda.
The need for extra work is usually a sign of a necessary improvement and should not be a constant ROI (return on investment) analysis component. Roughly put, this model put a fixed price tag on the whole development team. Project delegators can evaluate the work rate daily or hourly. This flexibility opens up opportunities for noticeable improvement as they arise.

How is T&M different than fixed-price or similar alternatives

Even the strictest budget needs some adjustment along the way. With Time & Materials, the notion that funding is not a static value is apparent. Instead of pretending that an accurate project estimate will save money in the long run, putting project requirements in the spotlight increases its success rate. The T&M suggests that investors might overpay, and this is a reasonable concern. However, it won’t be money spend on the wrong idea, but a successful effort to break scope boundaries and favor the execution of the initial idea as intended.
During the planning phase of any software development project, the main idea is usually clearly formed, and the project scope and allocated budget. However, even less experienced marketers know that predictions are, after all, just approximations of reality. Our experience with fixed-price projects reveals needless discussions between our clients and us. Every time an idea for an improvement comes on the table, it passes down as a missed opportunity since anything outside the already contracted requirements is an outstanding issue. With T&M, the development team’s energy and the clients are channeled into meaningful tasks. Otherwise, predictable discussions leaving all parties dissatisfied and possibly even offended.

Benefits of Time and Material

From a developer’s perspective, T&M is one very convenient method. Whenever clients develop an idea outside the initial requirements, they can better evaluate it as an asset before moving forward. Therefore, innovation is welcome and encouraged with T&M, which is why forward-thinking business folk has added it towards their working toolset.

Communication & Conflict of Interest

Fixed budget projects are looming with the dread of miscommunication. The danger of communication breakdown is usually due to discrepancies between the final product and what the client imagined. With T&M, communication is naturally strong due to the frequent feedback exchange rate between stakeholders.
Instead of developers presenting any new change as something that breaks the agreed scope, clients and developers all stand behind the drawing board. They collectively decide the project’s fate, even during the final stages. Clients like to be involved in the project themselves. This tendency is especially true in eCommerce, where customers usually already invested many mental and physical resources into their online endeavors.

Agile and T&M

Having covered some of the benefits of Agile, it happens so that it combines perfectly with the “Time and Materials” approach. Both practices have the necessary similarities to blend in together and unique features to make their contribution worth the stage pass. In Agile, the client monitors product development at every stage and can follow-up on the accurate follow-up to the initial idea. In comparison, a more conservative approach to project management, like Waterfall, for example, allows the client to see the final product only once – when it is ready for launch.
Loading the last impression with such importance is an apparent high risk, mainly when the project is big or complicated. It is easy to imagine how unseen flaws can dramatically reveal themselves during the final product presentation and ruing unimaginable work hours and effort invested. Continuous feedback is adherent in non-linear approaches to project management, and unwanted issues rarely surface unexpectedly. “This is not what I ordered!
It would be unthinkable for business owners to risk losing their clients when their product is deployment ready. T&M is suitable for clients and developers. The idea of mutual appreciation has driven this work ethic to become such a popular choice for digital agencies and eCommerce customers.
Agile includes Time and Materials. Time and resources are two of the most important factors when making an accurate cost rate for project planning and development in eCommerce. Since this methodology welcomes new modifications, development teams intercept emerging chances for improvement on the go and share them with the clients. The client readily approves any suggestions with evident benefits. They can fine-tune their product without the contractual obligations associated with fixed-price models. T&M also reduces the need for the legal documentation otherwise necessary to describe and account for such sudden changes to the main plan.
Collaboration is an invaluable asset to humanity ever since the prehistoric hunter agreed to share some of his meat with those who had a fire going. The partnership between T&M and Agile carries a spark of prehistoric synergy in its essence. Apart from the convenient technical compatibility, the model also promotes improved communication between the custom software development team and the customer. Software development projects can launch quickly. Since new changes don’t create chaos with pending contract amendments, T&M also generally reduces the total amount of paperwork needed or the human resources allocated to manage it.
The cost rate of T&M usually covers the work of a whole team of trained professionals. Thanks to the light policy for total project cost, this dedicated team sometimes is no different than having an elaborate in-house solution. The software development team assigned to work following the T&M structure has the dedication to complete it. Team members always stay within the project’s contextual environment, and this is how the final product gains the recognized sense of wholesomeness that most strong brands have and emit.
Thanks to the T&M approach, clients have an uninterrupted view of the whole process, and their place in it has the increased importance that customers value more with Time. For example, it is much more essential to keep up with the exact idea with mobile app development than seek ways to reduce the total project cost by trying to fit the budget to what’s available technologically.
Workflow transparency is crucial for earning the trust of your customers. The daily log in the Time & Materials method is critically important for the clients since this is their personal gateway between the original idea and what they practically get.
The client has a close-up view of the project and can do walkthroughs on demand. The daily log, for example, is excellent for spotting emerging problems before they grow too big or too complicated to solve. Often, the client’s finished idea is not ideal, and they eventually realize and acknowledge it. A decision that alters the project’s course might come as a sudden realization mid-way through the project. The idea of T&M is to open grounds for ideas intimidated by the cost or failed communication. T&M reacts mildly to what — in more cautious approaches to project management —may be the reason for a total failure. Mold the iron while it is hot – and this is precisely what T&M is allowing it to do.

T&M - The verdict

Although progressive methodologies like Agile or T&M are not a universal solution by any stretch, many people try to improve upon an accumulated bulk of past mistakes. We compare Time and Materials to a fixed price model, but we believe that one feeds on the other’s flaws. If it were not for all past problems related to stiff terms and agreements, neither providers nor clients would have sought an improved collaboration method or increased the software development process’s efficiency.
Approaches like T&M strengthens the relationships between the software development team and the people behind the idea they try to realize. Any fast-loading mobile commerce app out there, for example, demonstrates a technological prowess. Still, with an inadvertent hint, this success would not have been possible without communicating the entire process that led to that positive end.
T&M is one of the signs the eCommerce industry is evolving to allow more opportunities to step out from below the thin ice crust and finally occupy the deserved spotlight. This modern approach to web solutions already has a strong presence now, and it will most likely frequent our future posts.

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Author

Andreas Maier | CEO

Andreas is a result-oriented CEO who brings nearly 30 years of experience gained in the high-tech industry. His experience ranges up to leading positions in Fortune 100 companies such as rentalcars.com (PCLN) or Intrasoft International, a leading EU based R&D software vendor. He holds a Ph.D. in Neural Networks from the University of Cologne, Germany.
In the past Andreas has successfully founded and co-founded several startups among others XXL Cloud Inc., eShopLeasing Ltd, and WDS Consulting SA. His expertise is strongly focused on modern headless Commerce and the optimization of processes in IT ecosystems.