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Fixed cost business model vs Time & Material model

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A Fixed cost business model is viable for projects with well defined requirements and timelines. Especially when the scope of work is clear and development team can prepare feature list based on client requirements.

Whereas in Time & Material model, Project scope and requirements is not precisely defined and it changes dynamically during implementation phase.

Total project cost in Fixed cost business model is determined immediately after requirement is shared whereas project cost in time & material model is determined by amount of time and resources expended and the effort hours.

Fixed cost projects mostly gets executed within the decided time-frame whereas time & material project needs to be divided into phases in order decide phase-wise deliveries and to decide which features will be executed in which phase.

Project Development phase for fixed cost project includes

  • Requirement Gathering & Analysis
  • Proposal for cost and time estimation
  • Approval from client
  • System design & Development
  • Project sign-off and maintenance

Project Development phase for time & material project includes

  • Requirement Gathering & Analysis
  • Identifying scope and suggesting to client to divide into phases
  • Providing estimation and hourly rates to client including schedules of phase 1
  • System design & Development and analyzing and planning for phase 2
  • Execution of phase 1 and development of phase 2 and next ¬†phases

The commitment and engagement for fixed cost business model will be predefined and any addition or changes in the requirement will involve re-negotiation whereas commitment and engagement for time & material model will be at-least more than 5-6 months.

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