Outsourcing Cost Model



Description Fixed Time/Cost Hourly Basis Method Full Time Equivalent
Meaning The fixed time project is one that is completed within a defined timeframe and budget. As the name suggests, projects are completed within defined number of hours. The cost is based in the hours spent on the particular project and extra hours cost extra. In this monthly, skilled resources are assigned for the client by the outsourced company. The cost is calculated on monthly basis for the duration of the project.
Features It is the most commonly used engagement model, which is based on a previously agreed target cost. Owing to the onus on the outsourcing company, the fixed price projects are completed with utmost care. Interim reviews at regular intervals, periodic status reports, regular client interaction, cost control and quality control are integral part of it. This model is perfect for low scale projects, where buyers of products and services are the end users. The cost is based on the total hours spent on the project. Any additional work costs additional amount. The offshore company sends detailed report for the hours spent and cross-verification can be done. This model is apt for clients who focus on quality output rather than quality output on time. Instead of resource and technology, deliverables play a crucial role. Clients can avail services from the offshore company for a specific period. Beforehand, client can review the skill sets, experience and competencies to ensure that these match his requirements. An independent team is designated for the client’s project. The client can keep a close watch on the progress and productivity of the project and can even ask for replacement if he feels that the work is not satisfactory.
Payment Methods Percentages are decided on the basis of the major milestones. The client has to pay advance and startup cost. Client receives estimation about the total hours involved for approval. After verifying the details and cross-checking, client can send his approval and thereafter an invoice is raised. Offshore companies offer a daily/weekly time sheet regarding the resource estimation, which is sent to the client for approval. The invoicing is done at the start of every month.
Advantages This is suitable for companies that have executed such projects earlier as well. Furthermore, this is perfect option for clients with budgetary constraint. Over time, good relationship is formed between the client and the offshore company. The biggest advantage is that changes can be made at any stage of the project. Competencies are developed owing to assignment of resources for particular project for specific time period. More projects can be taken without the need for hiring, staffing, training and re-training. Furthermore, one does not have to face stress related to peak load and off peak load. Another benefit is that the charges are also low.
Disadvantages For higher work volume, it is not a cost effective option. With the development of project, requirements do not change. Cautiously manage the risks involved in the project. Furthermore, charges are high.
Longer learning curve. If similar project comes in future, the same resource may not be available and one will take time to train the new team. So the learning gained from one project may not save time in the subsequent project.
Although beneficial, it is not an ideal option if the client looks forward to building long term competencies. Probability of counter-productive results is high. Difficult to estimate project duration. Not advantageous for larger projects. The charges are medium.
Longer learning curve disadvantage, similar to Fixed model. The same team may not be available for the subsequent project if the gap between projects is long. One needs to come up with intermediate option.
Needs to be well versed with project management. Close watch over the resources and continuous monitoring, to ensure that the resources do not remain idle.