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FIXED PRICE MODEL. EVERYTHING YOU NEED TO KNOW

November 08, 2016
ALEX SLOBOZHAN
Sales manager
When choosing an engagement mode for your perfect project, do not overlook the Fixed Price Model or FPM. Many IT teams prefer to create a Dedicated Team or use Time and Material Model, but why not consider all possibilities before choosing what's right for you?

Fixed Price Model means that you will receive a detailed offer including pricing and timescale upfront, which is more than you can expect with any other engagement mode. Let's take a closer look for you to decide if the FPM is right for your next project!

When Should You Consider Going for the FPM?

If the project you have in mind is rather straightforward you can go for FPM. Make sure to outline all your requirements, paying attention to every detail. Consider choosing the FPM if your project's desired features are very well defined and there is little to no chance of them changing over time.

The waterfall development approach often used for the FPM engagement mode will let you set clear goals for every work stage and review the progress using the preassigned parameters. This approach can be extremely cost effective if properly executed.

Fixed Price Model will suit you perfectly if you do not wish to spend a lot of your time supervising the development process and the end result is more important to you than the means and methods used to achieve it. Let the professionals do their job and enjoy the success of the finished product without extra fuss.

Other advantages of the Fixed Price Model include defining the budget and development schedule before the work begins. This motivates developers to work quickly and efficiently to meet the deadlines set and to run to budget.

How Does the FPM Work?

The Fixed Price Model is pretty straightforward, compared to other cooperation models. Here is a basic algorithm of the steps you are sure to go through:

  1. Make a detailed list of all your requirements and send an inquiry to the chosen IT company.
  2. Negotiate any additional requirements and settle all controversial issues.
  3. Agree on the final proposal, including billing arrangements and development timeline.
  4. After the agreement approval on both sides, the work on your project will begin.
  5. When the project is fully implemented all you need to do is approve it and pay the final bill.

Beware of the Fixed Price Model Pitfalls

Though the FPM seems very simple at first glance, there are some limitations you should be aware of before deciding on this model. Keep these weak points in mind:

  • Before the work on your project can begin, you have to spend much time and plenty of resources to define specific requirements and acceptance criteria.
  • You won't be able to influence either the materials or the personnel working on your project.
  • You should be ready for extra expenses if any deviations from your original project requirements occur at the development stage.
  • There's little chance you will be able to hire the same development team for any further maintenance or upgrade because after finishing the FPM projects teams are often dispersed.

What Other Choices Do You Have?

Sometimes you only have a vague idea of your project and can't properly identify all the requirements. Or maybe your product will take a long time to develop and will need constant maintenance. In other cases, you can't afford to stay away during the development stage because the project needs your constant supervision and input. Luckily, there are several other options, including Time and Materials Model and creating your own Dedicated Team. You can learn more about these engagement models through our blog entries.
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