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EVERYTHING YOU WANTED TO KNOW ABOUT THE TIME AND MATERIAL MODEL

November 21, 2016
MARINA DANILOVA
Sales manager
The Time and Material Model is one of the most widely-used pricing models among the outsourcing crowd. It is a little trickier than the Fixed Price Model but has several important advantages. Let's take a closer look and determine if the T&M model is right for your project.

First, you must understand what the T&M model entails. In simple terms it can be boiled down to this formula:

The seller will provide you with services of A, B, and C in exchange for the hourly rate of $D. You will also reimburse the seller any extra expenses (i.e. hardware) incurred throughout the project's development.

What Should You Go for the Time and Material Model?

The T&M model is extremely flexible and well-suited for long-term projects with an indefinite duration and budget.

If your project is long-term or too complex and you can't compile a list of strict requirements, the T&M model should be your first choice. It is perfect if your project depends heavily on the changing circumstances, and it's requirements have to be reiterated at every stage.

If your project is complete and launched but is still in need of a few bug fixes and updates, the Time and Material model is right for you. With the minimum amount of working hours, you get the team to work on the project's fine-tuning in accordance with the ever-changing demands of the market.

If you want your own team to work alongside remote developers, the T&M model is a great choice. As overall results can be impacted by the co-dependence between the teams, modern time-management tools should be used to guarantee that every hour is spent on completing the project and not wasted.Description

What You Need to Know before Agreeing to the T&M Model

The Fixed Price Model is usually more desirable for the client since the IT provider has to face the risk of exceeding the time and resources estimate. But since no one is willing to risk without reward, the Fixed Price rate is up to 20% higher than the T&M rate for the same project.

Don't hurry up and agree to the T&M Model just because it's cheaper for you. Remember, that you will be taking a chance this time. After the provider calculates the preliminary cost estimate and you agree to the sum, any changes you wish to make will be charged extra.

Keep in mind these drawbacks of the T&M model:

There is no defined deadline, so you never know when the project will be 100% complete.Final cost can differ greatly from the preliminary financial estimates. And the more changes you make to the project requirements, the greater the cost will become.Being intimately familiar with all the steps of the project's development will take time and resources that you might not be willing to spare.

How to Manage the Budget for the Time and Material Model

If you're dead set on the Time and Material Model for your project, you should know how to finish it without breaking the bank. After you find the perfect IT development team, negotiate the payment terms. You can choose to an hourly, daily, weekly or monthly rate, depending on the estimated duration of the project.

Every member of the team can have their separate rate according to the skill set and the level of expertise. Otherwise, some teams use a single blend rate that is applied to all the developers working on the same project.

Your requirements will change as the project grows and evolves, therefore staying within the estimated budget can be trying. So it is always a good idea to negotiate an expenses limit that should not be exceeded. This is often referred to as a T&M model with cap.

For the Time and Material Model to be efficient you should hire qualified project managers that practice modern methodologies to keep track of the project's schedule and the quality and productivity of the developer's work. The project manager will make sure to minimize the lag time and your expenses.

If after learning the basics of the Time and Material Model you decide against it, you can always go for the Fixed Price rate or create your personal Dedicated Team.
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