When to Use Fixed Price Model for Software Development

Every project starts with the request for proposal or the project estimate. The inquirer needs to know price, duration of the project and tries to find out the level of service quality. Request is usually sent to more than one software development company to get a collection of offers to choose the best one
Oct 13, 2013

What is required to do correct estimation? Of course, the main condition is having all requirements for the project and clear understanding of the client's aims. Actually this is the main part of the story. The more details software company gets from its potential client, the better analysis of the request and exact price can be defined. This is the ideal situation when client wants to develop software using Fixed Price model.

Projects to develop using Fixed Price model usually have the following initial characteristics:

  • clear scope of the project
  • complete set of features and requirements
  • client and service provider company know each other's capabilities and duties.

With this information client gets confidence and software development company gets clear road map, and together these 2 elements help to make any project successful.

  • What is SCOPE OF THE PROJECT?

    In short this is a list of what the developed solution should do. It's the mirror of the business goals and perspectives to be achieved with this solution by the client. For the project success it is vitally necessary to define all business goals and incorporate them into the product to develop.

  • What is SET OF FEATURES?

    This is a list of specifications how the solution should work. For example, a web site is to be developed. There is a business goal to deliver news and information about special offers to the web site visitors. To achieve this aim the feature list may include newsletter subscription, RSS feeds and blog implementation.

  • What is KNOWING CAPABILITITIES AND DUTIES?

    Software development involves two parties: client and service provider. Often software projects development involves client's intellectual property and confidential information. Client may request to protect intellectual property rights and to guarantee confidentiality. Service provider can be capable of it or not. Property rights protection and confidentiality guarantee usually are a part of service providers duties.

These three elements are the initial stage of project which influences project price and duration. Collecting all business aims and features can take some time as this is a dialogue between client and software development company. Normally this dialogue includes a couple (or more, depending on the project size and complexity) of iterations of the steps Analysis of request and Details clarification. Fixed Price model is used for projects with rich feature list available on pre-development stage. It is ideal when a request for proposal has such an attachment. Should the client have little experience, service provider assists the client with features list making. Usually a sample feature list is sent to fill in, then its being discussed and complete feature list is being prepared.

There are cases when client wants to develop project using Fixed Price model but it's not possible to define all business goals and features at the initial stage. Then it's better to split project into small subprojects or switch to other models: Time and Material or Dedicated Team.

Let's sum it up. To know the exact price of software development before a contract is signed the list of business goals, features and requirements (here desired price and duration of project implementation are included too) should be ready. The more details are provided to the software development company, the better it is. Knowing this service provider makes estimation of the project and provides fixed price of its development to the client.

Starting software development using Fixed price model both the service provider and the client should be ready to take a define part of responsibility. Service provider promises to deliver a quality product within approved time and budget and understands that should there be a mistake in estimate, negative consequences should be removed by the service provider. Client understands the risk of a project failure caused by inefficient business goals or the possibility of price growth should there be changes in the features to implement.

Fixed Price model is good but sometimes it's better to use other software development models to insure project against failure.

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More information about Fixed Price model of outsourced software development can be found in the presentation we made to help people seeking for nearshore or offshore software development.

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