Before transitioning to the software outsourcing models available, we will cover the different business models for software development outsourcing: nearshore, onshore, and offshore.
Onshore Software Outsourcing
Onshore companies work with teams that reside in the same home country as the client partner; while there is typically little to no language barrier with the external team, onshore software development companies are also the priciest of the three options.
Offshore Software Outsourcing
Offshore companies work with teams in other countries. This is the most affordable option because offshore software development companies operate virtually and remotely.
Nearshore Software Outsourcing
Nearshore firms work with teams in similar time zones. Nearshore software development companies sit in the middle between the onshore and offshore options. They are cost-effective since they delegate operations to teams abroad.
Now that we understand the different types of software outsourcing, let’s dive into the different software outsourcing models available.
Time and material model
This traditional model is easy to understand since it covers projects that have a clearly defined final goal. This type of contracting model defines the scope of work which is used to gradually build the required solution. The time and material model is usually calculated in man-hours of effort. This outsourcing model contract is finite and is only fully realized once the customer accepts the final results of the work. Its key characteristics include:
- A clear goal for the project.
- A System Requirements Specification Document is used to describe specifications, - functionalities, costs, development timeline, milestones, and deliverables.
- Short collaboration engagement (3 to 6 months approximately) with a warranty period to fix defects and bugs in the deliverables (usually of up to 30 days).
When to use:
This model is applied to a budget-defined project that is created based on the detailed project requirements and man-hour estimation. Not only for short-term projects, long-term projects with a very clear purpose, an established project management process and a solid stable set of requirements can also apply this model perfectly. If you already clearly defined the requirement specifications, this model is highly recommended to help you control the budget very well.
Fixed price contract model
This project-based engagement model is not dependent on how much time and resources are spent to complete a project; instead, the fixed price model is devoid of external dependencies and does not share the scope of work and resources needed to complete the project. It follows straightforward timelines and treats changes in the statement of work separately, with budget approval. Clients are billed on pre-defined milestones and this model is ideal for one-off projects where the scope is defined internally.
This model is very similar to the time and material model, with the important difference of billing clients on a fixed-basis instead of basing it on man-hours of effort. The fixed-price model works best for small projects with limited features and clear requirements. It’s also good for minimum viable products and projects with limited budgets and definite deadlines.
Dedicated development teams
This model is ideal for companies that need to quickly extend their development capabilities with highly-qualified and skilled teams of developers and other IT professionals such as designers, UI/UX specialists, business analysts, project managers, testers, and more. Usually, in this type of model, the client is in control of the extended team as the goal is to provide a look and feel of a remote team of dedicated team members. See our dedicated team service.
This outsourcing collaboration model can be useful to any type and size of a company and it includes three options in pricing: per resource, management fee, and per hourly rate. This model is an excellent fit for long-term support, maintenance, and progressive workloads of software projects that are expected to be flexible and scale easily.
When to use: For long-term projects with actively changing requirements, the unclear scope of work and varying workloads of the development team.
Basically, you can understand the Outsourcing development center as an intermediary company connecting between your company (client having demand) and IT outsourcing company (provider are available to supply your service).