Explaining Popular Software Engagement Models: Make the Best Choice

Summary: Most businesses are at a loss when it comes to choosing the right engagement model for their software development project. As a result, they often suffer unsatisfactory results, even financial losses. This blog will clear the air about the most effective engagement models and who should adopt what. Give it a read.

In a world where technology is evolving at a break-neck speed, the demand for digital transformation leveraging modern technologies is at an all-time high.

As modern businesses realize the need to digitize their operations, there’s a significant rise in forming software partnerships – alliances that make their software vision a reality.

And behind every software partnership, there’s a well-defined operational conduct which helps both the stakeholders define their expectations, deliverables, timelines, budget, and several other key factors influencing the success of a project.

We are talking about engagement models in software development – a set of agreements that guide the progress and crucial metrics of a software project. Our research marks software development as that essential service, the market for which will reach $1039 million by 2027 with a CAGR of $22.54% from 2020 to 2027.

Which makes it incredibly crucial for businesses to have a deeper understanding of software development engagement models. Because the right model can ensure a seamless software development process, streamline development costs, and assist with scaling as per requirements.

However, businesses might miss out on a host of potential benefits if they choose an ill-fit engagement model for their project and even succumb to losses.

Let’s first understand the true meaning of engagement models and what they entail.

What is a Software Engagement Model?

We could say the first step towards customer success is in selecting the best-fit engagement model. To put it in simple terms, a software development engagement model is an agreement that defines the nature of collaboration between your business and your software service provider.

An engagement model is generally chosen based on the size of the project, timelines, concept, and the mutually agreed upon tech strategy between the client and the provider. It is a crucial step since it defines the terms by which you engage specialists in your project in terms of KRAs, deadlines, payment, project management. and ownership issues.

No brownie points for guessing that there’s no one-size-fits-all model that would suit projects of different complexities or can accommodate diverse demands. You have to be specific in laying down your software development preferences and that would need to match your project goals.

So, let’s walk you through several kinds of engagement models and how to choose the best one for your business.

Explore the Kinds of Engagement Models for Software Development

When it comes the kind of engagement models I’ll divide them into two broad categories – Project-based engagement models and Relationship-based engagement models.

We can list down the project-based engagement models as below:

• Fixed Cost Model
• Time and Material Model
• Service Level Agreement

For the relationship-based engagement model, we have:

• Staff Augmentation Model
• Dedicated Team Model
• Offshore Development Center

We will also discuss the new-age Hybrid model here.

Fixed Cost Model

Mostly used in small and mid-sized projects, the fixed cost model is best for software projects that have well-defined scope, requirements, and deadlines. In choosing this model, you get a fixed price offer from your software provider depending on the complexity of the project and its probable duration.

This mode of engagement makes an SDLC more predictable. Because the key goals are defined, and both stakeholders are clear on the roadmap, scheduling, and deadlines.

However, the problem with the model is that it leaves no room for flexibility or changes. So, most businesses opting for this model sign supplement agreements to adjust minor changes.

Time and Material Model

If the scope of a project is continuously evolving, and businesses do not have a fixed deadline, the T&M model is the best bet. We have also had clients that needed extensive research and consulting to define the scope choose this model. It also works better for large scale projects that have evolving needs.

The T&M model is one that allows wider flexibility in software development in terms of deliverables and timelines. The requirements are not fixed but clients can pre-define the skill sets needed for the project.

This is followed by a standard time-based rate for every resource. It is then mutually decided the duration and when and how the tech experts are plugged into the project.

Service Level Agreement

A service level agreement, also known as a milestone-based model, is best for process-oriented projects and is opted for by clients who have pre-defined milestones for timelines. The software service provider sends out the bill after a specific milestone is achieved.

However, the payment term isn’t fixed and is based on the time and work required to reach that milestone. Since the focus of this model is in delivering milestones, both parties must clearly define the milestones, with roles and responsibilities clearly rolled out between both parties.

A service level agreement works perfectly for businesses that have trusted working relationships with their software partners when it comes to addressing disputes amicably.

Staff Augmentation Model

Think of staff augmentation as a renting mechanism where the client pays the outstaffing fees for each resource to its software service provider. In this model, resources employed with the software provider work as the client’s in-house team and not in a remote setup.

The IT staff augmentation model offers a business ample flexibility to scale up or down the size of their in-house teams with the help of resources from the software provider. This arrangement best suits projects that could go through fluctuation in demands. I have also seen clients who require in-person collaboration and more aligned in-house schedules choose this model.

The key goal of choosing this model is often cost reduction. A client that has a strong game in project management and has the bandwidth to invest time in supervising can choose to build their solution with this module. The staff augmentation model gives a business enough liberties to be a key decision maker, while hiring special expertise.

Dedicated Team Model

This model enables a business to hire dedicated developers with specialized skills to work on their projects. You can tweak some new features of the software or even shuffle resources, or you can make as many modifications as you want. Moreover, you can dictate the cost too.

It is one of the most compatible pricing models for a long-term software development company project that involves constant changes and evolving requirements.

The client pays every month to the team and ensures there are other essential resources available. The customer has complete control over the software development process as well as the plan of action.

The client monitors the team. As a result, you can save recruitment costs.

Apart from these well-defined standard models of engagement, there are several hybrid models which bring significant benefits to software projects.

Combination of Fixed Cost and Time and Material Model

• Ideal for projects with initial ambiguity stage
• The requirement gathering stage is conducted on an hourly basis to define the project requirement. After that, it commences on the fixed cost model.
• Proper documentation is in place, and well-defined project deadlines
• Cost-effective and a time saver

Combination of Fixed Cost and Dedicated Resource

• Ideal for product development projects with no documentation and to test a pilot-scale project for commercial viability
• Initial stage level requirements and select modules are based on the dedicated resource model to prepare a course basic framework for the solution
• The subsequent stages of development are based on the fixed cost model
• Helps in product/solution launch planning

The Best Way to Choose an Engagement Model

Determining which engagement model works best for your business is no doubt a very critical decision – because a lot is at stake. There are a few things you must determine by yourself before you take a call.

• Do you have an in-house tech team?
• What is the level of tech expertise you have in your in-house team?
• Do you need experts to work on your project from the scratch? Or is your in-house team also going to be a part of the project?
• What timelines have you set for the development?
• Do you have a fixed project scope with no room for changes? Or is your project scope flexible and adaptable to change requirements?
• Do you wish to pay a fixed charge for the software service? Or are you ready to accommodate additional costs for iterative changes?

Once you have broadly answered these questions, you will be able to relate to the different kinds of software engagement models and their intricacies. But no matter which model you choose; you must be clear of its legal and technical implications.

How to Avoid Traditional Problems of Engagement Models

As much as it is important to choose the right engagement model in software development, it is equally crucial to choose the right software partner who can help you avoid the traditional pitfalls.

I have listed down a few areas which a right software development partner with its qualitative process and wide experience can help you avoid:

• Project Management Issues: No clear communication, transparency issues with clients, work alignment and reporting troubles,
• Budget Issues: Exceeding stipulated budget for development, spending on unused resources/components, incurring technical debts,
• Product Issue: Final product isn’t up to expectations, communication issues leading to extended feedback integration loop, capabilities that do nothing for the end user.

Your TakeawayNo matter which industry you are in, digitalization is an inevitable move if you must thrive and survive. To succeed in the constantly evolving digital landscape, you have to integrate new technologies into your system.And for that to happen seamlessly, you first need to choose the engagement model that brings in maximum operational efficiency, minimizes flaws, and renders maximum advantages.At Radixweb, we help clients pick out the right software outsourcing business models with the help of advanced tech consulting. This ensures that the process of leveraging technology for their business is frictionless, so that they can get the maximum output from every stage of the SDLC.You can get in touch with our software experts to help you choose the best-fit engagement model that takes your software project towards desired goals.