Fixed Price (FP) vs Time and Materials (TM) Contract

A Fixed-Price model allows you to leave all of the work to the developers until the product is ready.

Time and Material, on the other hand, requires constant supervision of task progress, materials used, and budget spent, as well as frequent meetings with the development team.

The FP contract price includes all known risks that can happen during project performance. These risks may occur or may not. Still, the customer always pays for them.

The fixed price contract is a precise agreement on a particular time and cost, where a service provider guarantees to deliver the described results on specified terms.

Such a system allows service providers to predict project delivery dates, rates, and requirements. The product owner gets a clear picture of the work scope and its pricing.

Under TM contract, the customer will pay only for real project work. One doesn’t overpay for the risks which may not occur, but in case they take place, contrary to FP, it’s the customer who bears additional costs.

Time and materials pricing uses hourly rates as a billing basis.

Here, the development team does an estimate of the work scope based on hour count and provides the hourly rate for a particular service. The additional report covers the cost of materials — tools, hardware, additional expenses.

When can we go for FP contract?

For small and medium size project
When project requirement is fixed and won't change
No need meeting, set expectations to development team
When there is no major risks
When you have limited budget

When can we go for T&M contract?

The scope of the project is not small
The requirements are not fully known
The requirements may change during the course of the project
The you wants flexibility to modify scope or change features while the project is underway
When you have higher budget
When you have time for supervision of task progress, materials used, and budget spent

Comments

Delivering a project within budget

Here are some tips for delivering a project within budget: Set a realistic budget Define the project's scope and necessary resources, and create a budget that's realistic. Cost estimate Segment the project into smaller tasks and milestones to plan how to use resources and provide clarity. Divide the project plan Break down the project into tasks to avoid late deliverables and over-budget projects. Monitor progress Regularly track the project's progress to identify and prevent cost overruns. Use progress reports to compare actual costs to the budget. Anticipate and revise changes Communicate with stakeholders to identify and assess risks, and assign owners to each risk. Consider different scenarios Estimation can be difficult for complex projects with many potential outcomes. Tracking: Tracking time spent on tasks, Tracking expenses per project, and Using project management software. Use Historical Data Your project is likely not the first to try and accomplish a specific o...

Certified Enterprise Architect Professional (CEAP) - Module 5 - Architecture Frameworks

Architecture Frameworks: An Architecture Framework is a theoretical structure that has the purpose of developing, executing, and maintaining an Enterprise Architecture. Advantages of EA framework: Simplify Breaks down areas of the business process Organise business components and create and identify relationships between business Determine the scope Customization in the existing framework Disadvantages of EA framework: Need to follow process Provides only direction and not information It's based on goal and objective Need creativity and proactive thinking Zachman Framework: The Zachman Framework is a widely used model in Enterprise Architecture (EA) that provides a structured way to classify and organize an organization's information infrastructure by defining different perspectives from various stakeholders, allowing for a holistic view of the enterprise and facilitating alignment between business needs and technology solutions; essentially acting as a template to organize arc...

Bucket System project estimation

The Bucket System is an Agile estimation technique that uses predefined buckets to group tasks or user stories by size, complexity, or effort. Each bucket represents an estimate range, such as small, medium, or large. The Bucket System is a group activity that helps align the team's understanding of work effort and complexity. It's a good technique for quickly estimating a large number of items with a medium to large group of people. The effort of small, medium, or large bucket size arrived by team based on T-shirt sizing, PERT estimation or Planning Poker. Each bucket represents a level or an estimate range (e.g., small, medium, large). The team compares user stories to one another and places them into the appropriate buckets. This process is a group activity, promoting discussions and aligning the team's understanding of work complexity and effort. To use the Bucket System: Set up a row of cards, or buckets, with values in the Fibonacci sequence or other metho...

High-Tech Yuga

Search This Blog