FATA #8 /Commercial Models

The success of a project depends on many things — deliver your products and services another is how you will establish a relationship with the client and receive income.

Engagement models overview

Contractual responsibility

The software development contract specifies how a project will be delivered and what you and your partner will get after contract fulfillment.

Ways:

1. Delivering the Project End-to-End — legal responsibility
2. Hiring Only a Team — no legal responsibility

Engagement Model vs Commercial Model

The delivery responsibility can be much wider than what was out into the contract.

Engagement Model — is the type of interactions between a service provider and a client that captures “Delivery Responsibility”

Commercial Model — is a more specific term that defines how the service provider charges money and what is his contractual responsibility.

Engagement Model Types

1. Staff Augmentation
2. Managed Capacity
3. Managed Services
4. Dedicated Delivery Center

To evaluate each model, you can use four dimensions:

1. Transparency
2. Level of commitment
3. Managerial overhead
4. Financial reward

Additional dimensions:

1. What you do on day to day basis / Java, .Net, Ruby project, Support billing system
2. What are you paid for and how / Time and Material, Fixed Price
3. What “They” think you do/did / their java engineers great vs they solved performance issue

Commercial Models

Fixed-price model — puts a constraint on the project budget and scope into the contract.

Cost-Plus model-is built from 2 parts: costs of the vendor to deliver service and fee that is applied on top of the services.

Time and Material model — defined price per time unit — hour, day, or month of work.

Communication and relations are the key for vendor in T&M contracts.

Joint Venture model — for two or more partners who agree to collaborate to achieve a specific purpose.

Profit & Loss (P&L)

Balance sheet — is a snapshot of a business. It tells where a company stands financially.

Profit and loss — is a representation of the operations of a business during a specific period of time.

Cash flow statement — tells you about the overall flow of money into and out of a company.

It is essential to highlight the difference between two disciplines: financial accounting and managerial accounting. Managerial accounting is a set of practices and concepts which allow making executive decisions that impact finances and may vary from business to business and even from department to department in the same company.

The revenue is the same as in finances — it is the amount of money that is paid to the company due to a particular project’s delivery.

Summary

1. Adapt to the environment and try to be flexible
2. Optimal internal processed: provide optional and effective proposals, decrease time to market, improve quality
3. Know your customer: understand client business, products, service, and platforms
4. Consult, design, validate (POC, prototype, A/B test) and implement (MVP)

If your client is successful you will be successful

QA

The contract has large table named “Scope” with list of requirements that must implemented and estimated budget for the project.

1. Assumptions on which the budget is defined and that lead to revisiting the budget if not held
2. Risks including external risks
3. Change control procedure

sections are mandatory if the vendor wants to ensure the contract is safe to sign.