Price and Time variations in IT services business models
IT Services projects traditionally have two types of pricing models:
(1) T&M Model - Time and Material model, Customer can hire engineering talent and material (like IT infrastructure and labs) from the service provider on an hourly basis.
(2) Fixed Price Model – Customer and Service provider agree upon a fixed set of deliverables at a fixed price at a certain agreed level of quality.
Essentially it is the price and time on which these models are based on. Based on variation in price and time factors, we could create four models:
The following three models that are already in use:
(1) Open Time and Open Price Model: This is the typical T&M model, in this type of projects, the company agrees to supply engineering talent to customers based on their requirement. Customer billing is on a hourly basis. Talent utilization is entirely left to the customer.
(2) Open Time and Price with Measured Quality: This is a variation of the open time and price model, mainly used in large orders, customer sets expected performance levels by a service level agreement and links the performance to the payment. Typically some percentage of billing payment is controlled by the SLAs.
(3) Fixed Time and Fixed Price: This is the typical Fixed price project. Customer sets a fixed price and time for the project to be executed. Number of people to be used is left to the company. Customer sets a penalty on defaulting to the set time and price.
There are two new variants which can be tried out:
(4) Fixed Time and Open Price: When a customer wants to enter into a market place with a technology product within a fixed time, at whatever the cost, this model can be used.
(5) Fixed Price and Open Time: This model can be used in projects having lot of experimentation. Customer may want to set a cap on the price but would be willing to allow the team to experiment with technologies to come with the product successfully.
