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Is fixed pricing broken?

November 19, 2020

The business of building software and apps is littered with horror stories - blown budgets, crummy code, disappearing developers. Plenty of operators will give you a fixed price and a can-do attitude, but offshore software development veteran Jeremy Scott explains the reasons he no longer takes on project work.

While on the face of it, fixed-price development sounds safe and reassuring, when quality, security and long-term business outcomes are the goal, the picture changes.

With over a decade and 200 projects worth of experience under his belt, including several of his own software businesses, Hero Teams CEO and Cofounder Jeremy Scott has experienced first-hand the risks and traps of fixed price development and he believes there’s a better way for corporates and startups who are serious about long-term results.

Without quality there is nothing 

As we wrote in Build businesses and products, not just software, unless every other box is ticked first - quality, speed, skills and security - then the cost of software development is irrelevant, whether it’s fixed or ongoing.

The quality versus fixed-cost trade off is the primary reason that Scott has moved Hero Teams away from project-based work in recent years.

“I get people who reach out to me and say, ‘Hey, my colleague's been given a quote of X thousand dollars for this software. Do you reckon you could do better?’ And my response always comes back to the unanswered questions around quality and specifications that are often overlooked when comparing quotes.”

7 traps and questions to ask before signing off a quote

  1. How detailed is the scoping document and what is specifically included and excluded?
    Trap: Vague proposals leave a lot of wriggle room for variations. 
  2. What are the guidelines around quality of code and what warranty assurances are there?
    Trap: No way to definitely determine when the project is complete to an agreed standard.
  3. How do the fixed prices hold up when inevitable changes occur?
    Trap: Scope creep or new ideas cause cost blowouts.
  4. Who maintains the software after launch including bugs, new features, technical support?
    Trap: One team handballs the project to a new team without the build history.
  5. What are the margins added to talent rates?
    Trap: Paying high local rates for lower cost offshore resources.
  6. What are the project management fees and what do they deliver?
    Trap: Paying high fees for layers of admin, bureaucracy and overheads.
  7. How can security be assured and what protocols are in place?
    Trap: Increased or unknown risks of data and privacy breaches.

Very rarely is all this detailed in the proposals or quotes, and often that’s because accurately capturing all the answers upfront is simply not realistic. During the course of any major software project there will inevitably be legitimate and productive unknowns such as evolving strategies, new ideas, improvements from user testing and evolving markets.

As Scott has observed: “Even if both sides agree to a fixed scope, they’re going to end up spending more anyway over a period of time, so it’s better to account for that upfront.”

“The worst case scenario is a fixed cost quote with ambiguous deliverables. No one can really win there - the developer or the client - because it all comes down to vague expectations. It’s a ticking time bomb.”

A successful project has no finish line 

An equally important consideration for Scott is that successful software products are never actually complete. Once it is launched and in the market, step two (and three and four and fifteen…) is ongoing testing, fine-tuning and enhancing the product with new features. 

“For me, focusing on fixed price quoting turns the project from a partnership to a transaction. The goal becomes getting from A to B and being paid, rather than a commitment to achieving the business outcomes long term. This can work well for simple jobs, short-term overflow work or tightly specified features, but not for the long-term partnerships on which we have built our business.”

“Hero Teams works with corporate customers who need quality code and ongoing product development. We also work with founders who have in-depth industry knowledge and need a tech partner to bring their business ideas to life.”

“To succeed, each scenario requires a long-term commitment from both sides. This dynamic is very different to a fixed fee for service.”

Transparency, control and quality

No one has a bottomless budget, so of course it’s critical to understand the specific costs involved in reaching the required outcome and managing that application ongoing.

“At Hero Teams we’re completely transparent around our project management fees, individual rates for different team members and our margins. Every hour and task worked on is shared with you via our tracking system. We have all the project management and communication software tools in place - often integrated directly into existing client tools.”

In terms of security, privacy, trust and quality assurance, Hero Teams gold standard in security ISO 27001:2013 Certification for Information Security Management Systems sets us apart in the industry.

Direct integration within your team

Like any local team, Scott believes teamwork, culture and collaboration are the only way to get the best results.

“The more closely integrated into our clients’ teams the better. We want to be part of the future development discussions. We want to be part of retrospectives. We want to be, basically, as involved in the team as possible.”

“While no one’s travelling much right at the moment, we love inviting clients to come to the Ukraine offices, spend some time with their team and get a feel for the investment we’ve made in building quality teams.”

For over a decade, we’ve helped enterprise and tech companies build quality offshore development teams at scale, with no compromise on security. If you want to explore any options for your business, please get in touch.


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