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DMC Engagement Models: Time & Expenses vs. Fixed Bid

DMC Engagement Models: Time & Expenses vs. Fixed Bid

If you talk to DMC engineers, you may find a common sentiment that many DMC projects feel less like a set of tasks that are "just a job", and much more like getting to work on a fun and engaging hobby.

For those who are true engineers/developers at heart, the ability to bring something new and useful into the world provides its own reward and sense of fulfilment that can make all the effort involved seem worthwhile.

But no matter how enjoyable DMC's projects are to work on, the fundamental fact remains that DMC must charge for these projects to support company operations and to provide for employee growth and long term sustainability for our clients and vendors.

So how does DMC operate when it comes to defining budgets, managing the scope of work, and billing for projects?

DMC projects customarily follow one of two engagement models: Time & Expenses or Fixed Bid. Some multi-phase projects may involve a combination of the two approaches.

There are many factors to consider when deciding which option is best suited for a given project. The table below compares the two engagement models side by side to show how they might affect important aspects of the DMC project process. Every project is different, but these are some of the things we take into consideration when helping customers choose an approach that’s best for their needs.

 

Time & Expenses

Fixed Bid

Costs

Client is billed at a specific hourly rate for all services provided and any expenses associated with the project. Different hourly rates are applied for different types of services, and certain multipliers may be applied for overtime work, weekend / holiday work, and other factors

Client is billed a specific fixed bid cost for a specific scope of work. This cost to the Client is not dependent on the service hours or expenses that are actually required to complete the specified scope of work.

Cost estimates are based on a good faith estimate based on the available information on project scope. Since the time and expenses required to complete complex projects cannot be predicted precisely, the actual project costs incurred by the Client may be higher or lower than DMC’s estimates.

The fixed bid cost is a firm, flat fee established up front based on a well understood scope of work.

The actual project costs to the Client will not differ from the quoted fixed bid cost as long as the scope of work does not change.

Invoicing

Client receives invoices at regular intervals (generally weekly) as time and expenses are incurred throughout the duration of project work.

Client receives invoices as certain project milestones are reached (generally project start, system functionality, and project acceptance).

Each invoice covers the costs from the preceding period, and includes a detailed listing of the service hours spent, descriptions of work performed, and any expenses associated with the project work.

Each invoice covers a portion of the total fixed bid cost, but does not include detailed descriptions of services performed or expenses incurred for project work.

Scope

Accommodates projects that do not have a clearly defined scope. Project costs are driven by whatever effort is actually required to complete the project, so scope does not need to be fully defined at start of project. The scope can be defined and changed during the course of the project through the Client’s direction/guidance.

Incompatible with projects that do not have a clearly defined scope or projects that include significant “unknowns”. It is not possible to firmly establish what a project will cost when there is not a clear definition of what the project involves.

If project scope is not well defined, proceeding with project development with a limited knowledge of project goals / requirements can result in inefficiencies and potential deviations from the ideal development path

Effort spent to define project scope in advance generally pays off during project execution. Well defined requirements/specs provide DMC with a more complete understanding of the project from the very start, which facilitates more efficient and well-targeted development

Flexibility

Provides Client with the flexibility to change the project scope (add/remove features or requirements, etc.) during the course of the project. This can be done quickly and efficiently by the Client giving guidance/directions/requests to DMC. A detailed change order process is not required.

Changing the project scope during the course of the project requires a change order process to adjust the project budget to adjust for requested scope changes. This takes time and limits flexibility as compared to Time and Expenses.

Provides a better, smoother project experience for Clients whose internal budgetary / accounting structures easily allow for flexibility/variability in the end cost of a project

Provides a better, smoother project experience for Clients whose internal budgetary / accounting structures do not allow for flexibility / variability in the end cost of a project

Ease of Quoting

DMC quoting process is less involved and generally faster. Projects can be quoted and initiated quickly and with minimal upfront work. Parts of the project that are well understood can be started immediately while the scope/requirements on other parts are getting defined.

DMC quoting process is more involved and generally slower. Fully defining project scope to the point that DMC can provide a fixed bid quote takes time and effort by both DMC and the Client. Completing this process can delay when DMC actually starts project development work.

Requirements

Well documented requirements / specifications are beneficial but not required. DMC can support the Client in developing this information as part of the services provided during the project.

Requires well document requirements / specifications to be provided to DMC at start of quoting process. Preparing this information requires effort by the Client. Alternately, DMC can perform a small initial Design Phase to support the Client in developing specifications if they are not yet available.

Client Involvement

Well suited to Clients who want the DMC team to function as an extension of their own team. Conducive to close involvement, collaboration and open/flexible sharing of responsibilities between Client and DMC team members during the course of the project.

Well suited to Clients who prefer to hand off a project to DMC and have minimal involvement during the course of the project, and want DMC to simply come back with a finished product when the project is complete.

Risk

The Client assumes the risk for gaps in project scope/requirements and any unknown/unpredictable aspects of the project. DMC’s cost estimates will include minimal contingencies for such items.

As a result, cost estimates in DMC quotes will be lower as compared to a similar fixed bid quote.

DMC assumes responsibility for any unknown / unpredictable aspects of the project that fall within the stated scope of work. Contingencies are built into fixed bid costs to account for such items. As a result, fixed bid prices in DMC quotes will be higher as compared to a similar time and expenses estimate.

R&D

Well suited to Research and Development type projects where something new is being done, and where experimentation and iteration are expected.

Not suitable for R&D type projects

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