ODC Vs. Fixed-Price: Which IT Outsourcing Model To Choose?

In the realm of IT outsourcing, selecting the right engagement model is crucial for the success of your project. Two popular options that often stand at the forefront of decision-making are Offshore Development Center (ODC) and Fixed-Price models. Each comes with its own set of advantages and considerations, choosing between them is a significant strategic decision. In this article, we'll delve into the nuances of both ODC and Fixed-Price models, examining their key characteristics, benefits, drawbacks, and scenarios where they are best suited. By understanding the differences between these two approaches, you can make a more informed decision that aligns with your project requirements, budget constraints, and long-term objectives.

Definition Of ODC And Fixed-Price Outsourcing Model

ODC Model

What is Offshore Development Centre? 

Offshore Development Centre (ODC) is the kind of IT Outsourcing where your company aims to build or hire a remote team in a different country, working under your direction, which helps reduce costs and allows your main office to concentrate on core business functions. It's like setting up a branch of your office in another country, where you can find professionals who are as skilled as the inland at a cheaper price.

ODC is also known as the Time and Materials Model. Based on a specified timeframe, the more human resources you use, the higher cost you have to pay. The hiring price will depend on the position and level of developers. For example, if you want to hire 02 Front-end developers (middle level) full-time in 8 days, the unit price of hiring is 100 USD per person per day. It means your total hiring bill will be 02x8x100= 1600 USD.

The ODC team comprises various professionals, such as programmers, quality assurance, and testers, with the ODC service catering to their offshore requirements. Under this ITO model, clients are actively involved in the solution development process.

Types of ODC Model 

There are also other IT Outsourcing Models that share some similarities with the ODC model in terms of operating method and pricing as follows: 

• Nearshore Outsourcing: This involves outsourcing IT services to a company in a nearby country, often sharing a similar time zone. It offers a balance between cost savings and ease of coordination, benefiting from geographical proximity and cultural similarities.
• Onshore Outsourcing: This model refers to outsourcing IT tasks to a company within the same country. It provides the advantage of no cultural or significant time zone differences, facilitating easier communication and collaboration, albeit often at higher costs than offshore outsourcing.
• Onsite Outsourcing: In this approach, external IT professionals are brought to work at the client's premises. It offers close collaboration and direct oversight of outsourced activities, ensuring alignment with the company's culture and immediate access to project teams.
• Hybrid Outsourcing: This model combines onshore, offshore, and/or nearshore outsourcing elements. It's tailored to balance cost, efficiency, and control, allowing companies to leverage the benefits of each approach according to their specific project needs and strategic objectives.

Fixed-Price Model

On the other hand, within a fixed-price contract, also known as a project-based contract, the model focuses on outsourcing all efforts to an entire team. The team ranges from – project managers to developers (mobile developers, UI/UX designers, frontend and backend developers, testers, manual QA, etc.), all of whom can work on project from scratch.

Post-client communications and a thorough understanding of the vision and direction of the project, they start to scope the details of the work and the project’s timeline. These projects use offshore agile development services, breaking the larger project into smaller goals. Each of these sections lasts two weeks, which is called a sprint.

The cost will also increase with any increase in the scope or timeline. These risks are why it’s necessary to clarify the project requirements before the development phase. The time and budget estimation for the project must be proper.

Explore how MOR Software uses ITO Models for different projects!

Pros and Cons of the ODC model

Pros 

• Flexibility: Clients are able to make informed decisions during steps of software development, drawing on the outcomes of the previous ones (end-user feedback) and the analysis of the latest market tendencies. Therefore, features can easily be added or removed during the execution process to meet the customer’s expectations. Furthermore, thanks to the flexibility of this outsourcing model, no detailed software development plan is needed, so the project can launch fast as soon as the client and development team agree on the resources involved and contract terms. 
• Clients’ Full Control of Project Management: In the ODC outsourcing model, project managers from the clients’ side are responsible for the team process, even deciding on which methodology to follow. If you ever ask “How to choose a Software Development Methodology?”, it mainly depends on the project requirements. 
  For example, a project related to Finance and Banking or lasting for a long time is suitable for Waterfall Methodology. Moreover, as the clients’ team directly collaborates with the ODC team throughout the project, it can be a promising opportunity for their employees, especially junior-level staffs to learn and improvise. Thanks to this type of project, they can seize a chance to expose themselves to new knowledge from experienced and creative ODC experts as well as apply their theory into practice, which is no doubt beneficial for both themselves and their business in the long term. 

Cons

• Language Barriers: The most immediate disadvantage of ODCs is the potential language barrier. While English is commonly used in business globally, nuances in language proficiency and accents as well as different cultural backgrounds can lead to misunderstandings. This is especially critical in software development, where precise communication is key to understanding complex technical requirements.
• Working Style Disputes: Different countries have distinct work cultures and ethics. For instance, some cultures may prioritize consensus and collective decision-making, while others focus on individual initiative and rapid decision-making. This can lead to mismatches in expectations and working styles between the offshore team and the parent company.
• Low control over the working process: When a team is geographically distant, it becomes more challenging to monitor and manage their performance effectively. Without the benefit of regular, in-person interactions, it can be difficult to assess factors like work ethic, team dynamics, and individual contributions accurately.
• Uncertain budget and deadlines: If everything in the Project-based contract is clear at the beginning stage, it is nearly impossible to identify the overall budget and timeline in the ODC outsourcing model. It is no exaggeration to say that the final cost may go beyond the expected budget and so does the release date. Any adjustments to the project can shift the date of the final release and the project can become overdue. Besides, the software development price is approximate, so the clients hardly know how much money they have to spend. Therefore, it is all the Project Managers’ responsibility, who has to manage every step of development in the Time & Materials model closely by applying the KPI for each stage, which regulates the flow of work to stay close to the initial expectation.

Benefits and Drawbacks of Fixed-Price Model 

Benefits

• Shared Efforts Boost Up Efficiency: This collaborative approach means that while customers are primarily involved in the ideation and business process phases, they also participate in risk management throughout the project. The outsourcing providers, on their part, handle the bulk of the development work. They are responsible for addressing any issues that arise during this phase, but their role is not limited to just execution. They bring industry expertise and experienced professionals to the table, offering valuable insights and consultation to clients, especially in the project's initiation stages. Consequently, while the outsourcing providers manage the technical aspects of the project, clients remain actively involved, contributing their knowledge and oversight, particularly at critical stages like defining requirements and accepting deliverables. This shared responsibility model ensures that both parties work together to navigate any challenges, be it human errors, technology risks, or changes in economic conditions, thus reducing the pressure solely on clients.
• Clarity On The Project Outcomes: The Agile Methodology that a Project-based model follows helps to clarify the output of the project. This type of contract requires the supremacy of meeting deadlines and milestones while keeping the scope frozen until the sprint is over. Final acceptance is formalized and based on a number of criteria that the parties agree on in advance. Since Fixed-Price contracts are time-limited and finite, most outsourcing vendors offer a warranty period as a token of confidence in the results of their work.
• Receiving Constructive Feedback From Outsourcing Team: Outsourcing teams often bring specialized skills and experience to the table. Their feedback can highlight areas of improvement, potential pitfalls, or innovative solutions that the client might not have considered. This input can significantly enhance the quality of the output, as it incorporates diverse perspectives and professional expertise.

Drawbacks 

• Limited flexibility for changes: Fixed price contracts often provide limited flexibility for changes. Any alterations to the scope of work or materials specified in the contract may result in additional costs or delays, which could impact the project’s timeline and budget.
• Underestimating the scope of the project: As everything about the project are discussed and agreed on contract before initiation, it is uncertain that the actual development process and final result will match 100% with what is written beforehand on the contract. Some unexpected events may happen during the project such as over deadline, developers dropping out of the project midway or shortage of budget. Contractors may even sometimes cut corners to stay within budget, which could result in inferior workmanship, use of subpar materials, or disregard for safety standards

ODC vs Fixed-Price Model Comparison

Discover about MOR Software’s Cooperation Models!

ODC vs Fixed-Price Model: Which is better for your business? 

As seen above, each of these formats of outsourcing has pros and cons, which only makes the decision-making process tedious, yet worth the time spent on them.

So, our expert take is:

In case you are choosing the ODC Model for your ITO plan, your company could probably be looking for:

• Rapid product deployment: Accelerate the time-to-market for your products by leveraging a dedicated, efficient offshore team. This team can work in parallel with your in-house team, ensuring continuous development and faster implementation of features, ultimately leading to quicker deployment of the product.
• Extend expertise & team size instantly and economically: Gain instant access to a global pool of talented professionals without the prohibitive costs usually associated with such expansion. This approach allows you to augment your in-house team's capabilities and scale up quickly, providing a flexible and cost-effective solution for increasing your team's size and expertise.
• Access to specialized external experts: Benefit from the specialized knowledge of external experts for aspects of your business that are outside your core competencies. These experts can provide insights and solutions in areas you are less familiar with, ensuring that all aspects of your business, especially start-ups are handled by knowledgeable professionals.
• Cost reduction and time savings in recruitment: recruiting new employees to be in-house members will require more time on onboarding and training as well as more cost on salary, insurance, and other fees. Meanwhile, the offshore team is already equipped with the necessary skills and experience

In case you are choosing the Fixed-Price Model for your ITO plan, your company could probably match the following scenarios:

• Clearly Defined Requirements and Deliverables: This model is ideal when your project's requirements and deliverables are already well-defined and unlikely to change. This clarity allows for precise planning and execution, as the outsourcing provider can accurately estimate the workload and resources needed, ensuring a smooth project flow without the need for continuous adjustments.
• Minimize Risk and Budget Control: The Fixed-Price Model is particularly suited for companies looking to minimize financial risk. Since the cost is agreed upon upfront, it provides a level of budget certainty, eliminating the risk of escalating costs. This model transfers the responsibility for cost overruns to the service provider, offering peace of mind and financial predictability to your business.
• Development of Short-Term or Small Projects: If your project is of a shorter duration or smaller scale, the Fixed-Price Model is typically more efficient and practical. This model allows for quick mobilization and focused effort, as the scope and timeline are predetermined. It's ideal for projects where the end goals are clear, and there's a defined pathway to achieve them, making it easier to manage and execute within a set period and budget.

Pick the best ITO model for your business with MOR Software

Choosing the right IT Outsourcing Model is crucial for the success of your business. MOR Software, a leader in IT solutions, is here to guide you through this critical decision-making process. 

At MOR Software, we understand that each business has unique needs. That's why we offer tailored consultation for both ODC and Fixed-Price Model that fit every business’s requirements. We emphasize the importance of aligning business objectives with the outsourcing strategy to maximize efficiency and productivity.

Leverage our expertise to navigate the complexities of IT outsourcing. With a team of multidisciplinary engineers and experts, MOR always delivers innovation and competitive advantages in the technology development trend through the following products and services:

• Software Development Services
• Website Development Services.
• Mobile Development Services
• Salesforce Development Services
• Offshore Development Services

Furthermore, we provide consulting and development services in modern technology software, such as:

• AI application research and AI system development
• Blockchain and Bitcoin development/operation
• Cloud computing solutions
• IoT development and digital transformation

Choose MOR Software as your IT Outsourcing partner now!

The choice between an Offshore Development Centre (ODC) and a Fixed-Price IT Outsourcing Model hinges on your business's specific needs, project scope, and risk appetite. While ODC offers flexibility and access to a global talent pool, ideal for dynamic and long-term projects, the Fixed-Price model is suited for projects with defined scopes and timelines, offering budget certainty. It's essential to weigh the pros and cons of each model against your project requirements and strategic objectives. Ultimately, the right IT Outsourcing Model should align with your business goals, ensuring efficiency, cost-effectiveness, and success in your IT endeavors.