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Guest Post: Why Time & Materials?

It is one of the first questions we hear from a client. From the clientside the ideal situation would be to receive the application he desires for the fixed price and fixed time. And no excuses :) But is it as simple as the client thinks? I tied to gather the cons of the fixed price projects and pros of time & materials to prove my point of view. Looks like both a client and a developer receive greater benefits if they work on a Time&Materials contract.

Here are the pros of T&M projects:

1) Risk buffers. In the FP model, all the risk is on the services provider, because the amount of money the customer is paying is set up front. But it means that services provider takes into account all the possible risks while estimating works and adds them to the budget. So, the client has to pay for the risks anyway and in advance, no matter if the risk happened or not.

The approach we must employ to mitigate this risks is:

  • insist on highly detailed requirements documents up front;
  • significantly design the system prior to making a bid in order to enable a reasonable estimate to be generated; and
  • substantially mark up our best estimate to provide a buffer for the unanticipated, because “stuff” happens—and in addition, risk has a cost in all economic transactions, and if we are going to carry more risk we are going to insist on additional compensation.

Unfortunately, rarely is a project so simple that the customer has developed a sufficiently detailed requirements document prior to approaching us.

As a result, to fill secure we have to add really huge risks buffers.

T&M allows customer to pay only for the risks which happened.

2) Changes are welcomed in T&M Agile projects.

It is almost guaranteed that during the course of implementation, new product possibilities will emerge that are attractive to the customer. Put another way, the business reality in which the customer lives will change, and this will lead to a desire on the part of the customer to change the project in some manner.

In FP projects all the additional features are billed separately as “additional functionality”. T&M project allows customer to spent his money only on the feature which he needs now, not the features he needed when signed the contract.

3) Speed is a focus in T&M Agile projects

It begins from the start of the project: Clients often need to get started just now! And the cleanest fastest deal to negotiate is always a straight T&M deal. We can start work immediately once we agree on a rate chart and a couple of other standard contract terms.

During the development: client can change the scope, testing requirements while preparing the release to fit certain marketing connected deadlines, for example. Just imagine that with FP project you can’t move the deadlines, as they are signed in the contract. T&M agile team will work with the customer to find the best solution in the terms of scope/timing to fit the new goals, which appear so unexpectedly.

The most important lessons you will get about your software will come from customers. Agile teams are able to get software into their hands quickly by only building just enough software to get valuable features delivered.

4) Close cooperation and trust

We do understand and respect our new customers’ fears that, in a T&M engagement, we will have no incentive to be efficient in our work. However, we believe this concern is best addressed in other ways. In particular, we assign an experienced project manager to every project. Among other things, his or her job is to keep close tabs on the team’s implementation progress and communicate it to our customer on a frequent basis. A tight feedback loop between our customer and us allows quick course corrections to be made when necessary, and leads to increased and mutual trust over time.

5) Meeting the project goal is a focus, not meeting scope

In the beginning of a project we know as little about it as we ever will. Vice versa at the end of a project we know as much as we ever will (during the project). In traditional project models we start by doing the most important decisions at the very beginning of the project. This means writing a detailed requirements definition that has to be met before the project is done. This means that we will do the most important project decisions even before we have started the project.

 

In agile we don’t fix the scope of the project in the beginning. While this requires a lot more trust between the customer and the supplier it definitely means better results as well. Agile means higher risk of not meeting the initial scope of the project but much lower risk of not meeting the goals for the project.

6) Product Owner (client) has time to focus on the customers and the market

Agile teams strive to be “self-organized.” The whole team is responsible for determining who works on what and for tracking and reporting progress. Agile teams are also responsible for maintaining a high level of quality and verifying that everything that goes out actually works. This means that agile product owners can focus on their customers and market, rather than doing team management and worrying about development routine.

7) The transparency of the process to the Client and possibility to control the process

Client has all the instruments and data for taking the decisions of different features implementation, dates of release, scope of works.

Sometimes, it is difficult to persuade the client stick to T&M even after discussing all of this pros with them. I usually suggest to “have a try” with a small phase of the project to see, how it goes, and understand all the benefits.

 

About the author

Galina Kostetskaya is a cool PM and a dear friend of Stanfy. Managing projects of all kinds in her day job, Galina loves sharing her experience in her blog and baking cookies.

May 22, 2013

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