One of the main goals of a Project Manager is to maintain a comfortable environment for developers in order to let them do their job in the best way possible.
And even though they don’t seem to relate directly to actual development, contract details often affect not only financial prognosis, but also the everyday work of web-development teams. Let’s see how.
Fixed price as well as time and materials, as noted in the title, are two main models that development agencies use to bill their customers. Fixed price suggests that there is a fixed budget and usually a timeline for delivering a project with a known scope. Both sides agree on them before starting a project and do not expect any amendments during its implementation.
Time and materials pricing method is a leaner model in which a client is billed for the time they spend on the project, no matter how long it takes. This also includes any third party materials that are used in the project.
Pros and cons of fixed price
First of all, let’s see how the price is formed for a fixed budget: it consists of the project estimation plus some risk margin (most often it’s around 20-30% of the whole project costs).
Estimations are the most difficult part of the process, especially when dealing with completely new projects. It’s almost impossible to come up with the precise figure until you get deeper into the project, try a couple of approaches and pass a few iterations.
This is why the margin is added: we assume that there are some risks which we don’t see now and which might occur later (aaand they usually do).
The fixed price model usually looks attractive to bigger companies that have to plan and justify their budget far in advance and don’t mind paying extra in exchange for made-in-stone predictability.
So that seems pretty fair for projects where the scope is not about to change, right? The profits are going to directly reflect the estimated skills of the team (which grows with its expertise) and the customer knows exactly how much it is going to cost.
However, there are always new inputs during a project: whether it is new requirements from clients, or a new version of an API we were going to use, or new browser to support.
#agile #project management #business
