If you had two vendors submitting proposals to build a solution and one vendor charged $25 an hour and one charged $125 an hour, which would you choose? This is a basic question faced by many businesses looking to outsource custom development. If you're responsible for making this decision, you're continually going back and forth between the project's budget and its goals. You don't want a project that veers into the red and starts to bleed without accomplishing anything, so it's easy to lean towards the smaller hourly rate. But what if the $25 hour vendor takes 200 hours ($5,000), while the $125 hour a vendor takes 40 ($5,000)? Suddenly, the price offers no advantage and you've purchased a solution where the quality and stability is likely poor or outright risky. Estimates don't conform to reality and these types of escalating hourly projects are common. Here are five tactics to avoid this scenario and help prevent runaway development costs regardless of who your business decides to hire.
1. Babysite your vendor. This tactic basically is to hold the vendor's feet to the fire by continually asking for updates, reviews, time spent and etc. It let's them know that you're holding them accountable and not writing a blank check. The downside is that it requires you to take attention and energy away from your core tasks and step into a project manager role.
2. Require vendors to provide detailed estimates of each stage and function of the project. This is another tactic to hold them accountable. For vendors working on an hourly rate, the temptation is to lowball estimates to win bids. However, if they're required to work against their own plan and estimates, then lowballing will work against them and expose the true project cost before things get out of control.
3. Breakdown larger projects into smaller function based projects. In general, breaking up projects into functional phases is a good way to organize and execute a project. When outsourcing work to a vendor, it has the additional benefit of allowing you to add in buffers to prevent hemorrhaging cash. The drawback to outsourcing many smaller projects is that it can increase the total project time because you now have several small projects to take through all the additional preparation, review, and paperwork.
4. Only work with vendors who provide fixed bids. For a vendor, fixed bids are inherently risky because custom development is complex and it's difficult to anticipate all the obstacles that will be presented. Due to this, it's uncommon to find vendors who will take this approach.
5. Work with reputable businesses. If you try and work at the bottom of the market, you're going to run into lots of issues. Businesses compete on price only when there is a good reason to. For development shops, those reasons might be communication issues, lack of skill, lack of experience, too broad of focus, no body of work, amateur execution, and etc. Reputable businesses may cost more but they will be more likely to work well autonomously and still deliver a headache-free solution.
Price is no indicator of performance and I don't recommend you try and use these tactics to execute a bottom end solution. The 200 hours I mentioned in our example could have been subcontracted to high school computer science students to cobble together a solution that is brittle, buggy, and riddled with security holes. Getting something working doesn't require much more than modest technical ability; anyone can build a cart you can roll down the block, but not anyone can build a truck you can transport goods with. If you value a solution enough to invest your company's capital in, meeting your goals should be the deciding factor, not cost.
We don't require hand holding and once we get started you won't need to look over our shoulders— we'll let you know how your project is progressing. Instead, we provide points 3, 4, and 5: we break down large projects into phases, provide fixed quotes for custom development, and are a reputable business with over five years experience and a track record of helping our clients achieve their goals.