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WHAT BUSINESS MODEL TO SELECT FOR OUTSOURCING SOFTWARE DEVELOPMENT?

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Software development outsourcing is growing, improving, and new trends are constantly emerging. Internal business processes are completely changed when traditional business models are replaced or added to by outsourcing engagement models.

The first step is forming a strategic collaboration with an IT outsourcing provider. Choosing the right business engagement model is important because the business partnership approach focuses on creating value, conserving resources, and reaching goals.

At Agiliway, we offer a diverse range of business models to cater to your unique needs. Our focus is on delivering the most effective models to our customers, ensuring maximum benefit for their business.

There exist three proven engagement models in software development outsourcing. Discover the ideal option that perfectly fits your requirements by conducting thorough research on all of them.

Fixed Price

Clients using the fixed price engagement model for software outsourcing hand up control of the IT solution on a certain date and wait for it to be completed and available for use in the market. In such situations, the customer has either a very specific idea of the final product they want to see realized, or a very specific list of specifications they want met. During the talking phase, the scope, budget, main development phases, and dates are all decided upon and written down. Only then is a full plan with bills given for approval.  It is not acceptable to make substantial changes after the agreement has been reached and work on the project has begun. If you deviate, you’ll have to pay more.

When the fixed-price involvement plan works, it does so in the following ways for the client:

  • desires a one-time engagement with the service provider;
  • explicitly defines the scope and requirements, which are not subject to change during the development process;
  • not enough planned initiatives to justify retaining full- or part-time engineers on staff;
  • cost and terms estimated and agreed upon beforehand;
  • lacks the technical knowledge to control the development process;
  • prefers to transfer all risks to the service provider.
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When engagement scope ends up being reasonably tentative and risk estimations are imprecise, this business model is not the ideal choice. Customers will pay individually for any added features in such circumstances. In its turn, the service provider will try to strike a balance between the managerial and technical risks by including them in the price structure.

Rate-Based Out staffing

This software development outsourcing strategy is common among businesses that want access to new skill sets since it relieves the client, often a Western ISV, of the burden of locating and maintaining suitable people and supporting infrastructure. Consequently, costs are reduced since the outsourcing company is responsible for recruiting, training, and orienting all new team members within a condensed time frame. Cost per employee, new team members’ working hours, and the length of the partnership are all determined at the beginning.

Applying for rate-based out staffing becomes an appealing option for ISV businesses if the following conditions are met:

  • the local workforce lacks certain skills;
  • the business doesn’t have time or resources for non-core duties or recruitment;
  • the distant location isn’t a priority for the organization;
  • the ISV decides to cut costs by paying for FTE performance;
  • a long-term collaboration with a set of duties is expected;
  • the client handles project management;
  • professionals are needed because the task is narrow or changes often;
  • work should be completed at any time of day or night.

The rate-based out staffing approach has a lot of promise, but it does have a few drawbacks, such as requiring a lot of administration time and giving you little control over your team members. Although it is the client’s responsibility to successfully complete the project, the outsourced vendor must provide the workplace and essential working circumstances and assure the day-to-day operation of committed engineers. The problem with not having control over the team is easily fixed when the client switches to BOT interaction models.

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BOT Cost+

When a company chooses to outsource its IT operations and establish an offshore dev center to boost its development capacity, the BOT Cost+ model becomes an important consideration. In this interim model, the outsourcing company guarantees the development of a fully operational workforce and its optimization for efficient service delivery. During the first team-building phase — which may last anywhere from a few weeks to a few months — the outsourcing partner bears complete responsibility for all aspects of human resource management, facility administration, business and legal affairs, and quality control. Once operations have stabilized, the offshore business’s assets will be transferred to the parent company.

The following requirements must be met for the transitional model to be effective in solving your problems and improving your company’s bottom line:

  • maintaining a local engineering team would be costly;
  • during startup, the customer chooses risk mitigation;
  • a company decides to own and run a fixed IT department in a faraway location;
  • customer desire to avoid stress when it comes to recruiting, training, and infrastructure setup at a new site;
  • outsourcing provider handles the construction stage’s licensing, permits, and national regulations.

The BOT Cost+ model has gained popularity as a savvy approach to outsourcing among businesses that devise multi-year objectives and manage operations accordingly. Some of our BOT customers employ Agiliway consulting and consultation services to oversee operations after a transfer, while others hire some of our local managers to pass off operational management.

The essential features of each model were summarized for simple visual comparison in the table above.

It’s important to answer questions like these before committing to a collaboration with an outsourcing provider to create a clear picture of what you want to achieve.

  1. What is the purpose of my involvement? Do I intend to expand an internal IT team (rate-based out staffing), partner with an external team to complete a well-defined one-time project (fixed price), or establish an offshore team for recurring projects (BOT cost+)?
  2. What lengths am I willing to go to? Short-term or long-term cooperation (out staffing, BOT)?
  3. Would I prefer to take risks for minimum pay (cost +, rate-based out staffing) or pay more to eradicate all risks (fixed price)?
  4. Do I require a team of full-time resources (out staffing, BOT) or will a single subject matter expert (rate-based out staffing) suffice?
  5. Should I choose options with lower risk (fixed price, out staffing) or the option to have complete control over my remote resources (BOT)?
  6. Which is more important to me: having immediate access to a project team (fixed pricing) or having control over the outsourced project (BOT, out staffing)?
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Start heading in the correct direction to broaden your expertise, speed up software development at a lesser cost, and go farther than your in-house team could. Keep in mind that Agiliway may make adjustments to any of these models so that they better meet your requirements.

 

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