If you’ve considered transitioning from a time and materials-based contract to a managed service model for your IT needs, you’ve probably thought a lot about how you might increase efficiency while also reducing costs and operational risks. If you’ve determined this is the right way to go, you’ll likely need to start thinking about things a little differently.
On the other hand, perhaps you’re sure that the Time and Materials contract is the way to go. Maybe you’ve examined your list of customers or clients and have decided that this alternative, where clients pay for the exact cost of the work based on an hourly rate and cost of materials, is the correct selection.
Whether to turn to Managed IT or the Time and Materials option can be confusing and the answer is different for different kinds of businesses. So, let’s take a look at the pros and cons of each.
Sometimes referred to as “Fixed Price IT”, Managed IT has a number of advantages, the most prevalent being the fact that it comes with a pricing guarantee rather than a price that may turn out to be much more than you were expecting.
It’s important, however, that the project involved be well defined as far as tasks and responsibilities are concerned, or else you do indeed risk the probability of a price change. As such, these Managed IT projects should have specific phases and deadlines so that the scope of the work is clear.
Will this cost less? Possibly, but experts note that there’s often a little padding built into such contracts – a sort of buffer zone – that may mean you’ll pay more than you would with a time-and-materials contract. In addition, there’s not a lot of room for flexibility in these types of contracts, so as soon as something changes, you may have to reprice it according to any new expectations the client might have.
So, if your services tend to “evolve” a lot and not stay the same, this might not be the best option for you. Instead, you may want to stay away from the fixed-price contract and move towards Time and Materials instead.
Time and Materials
With a Time and Materials contract, the client or customer pays for the exact cost of the work completed. The price is based solely on your hourly rate and the cost of materials used. This means that pricing is not available until after the work is complete. For some, that’s a huge concern.
However, other companies prefer the Time and Materials option because there’s a lot more flexibility built into the contract. For example, there usually isn’t an outline and must-have deadlines but, rather, a more generalized plan that allows the service provider to adapt to the customer’s needs and adjust to their budget as well.
Some customers like this option because it does indeed give them move control. Many point out that they opt for Time and Materials because they feel like they are paying for their ACTUAL needs rather than perhaps paying that flat fee for a service that might – in fact – exceed their needs. As such, they sometimes feel as if they’re overpaying.
You may find that some Time and Materials contracts are broken into phases, which allows time at the end of each phase for the service provider to check in with the customer and review what has been done and whether they are on track as far as both the work that needs to be done and the budget that is available for that work. Customers like this plan because they feel like they can monitor the work in small increments without micro-managing.
Of course, there are risks. Most notably, Time and Materials contracts can run astray, with work that should have been done in one month perhaps taking three instead, simply because there is no hard-and-fast deadline stated in the contract. This can also happen when the customer continuously adds to the list of expectations.
The Time and Materials option may also demand that the service provider keep very close tabs on their expenditures, which can be an added burden. But if the client has a limited budget, this monitoring is essential.
In addition, some service providers find that efficiency is not to their advantage with the Times and Material option so they prefer the Managed IT choice instead. When the provider is highly-experienced and gets things done in a more timely manner than perhaps another service provider, he is essentially punished for his efficiency by receiving a smaller paycheck simply because he finished the job more quickly. For that reason, the Time and Materials contract has become unpopular with many service providers.
That’s a quick synopsis that we hope answered some of your questions. If you’ve been waffling back and forth between these two options and aren’t sure what’s best for you and/or your clients/customers, the experts at Stillwater IT can educate you further on the advantages and disadvantages of both. Call us today for a no-obligation technology audit or to learn more about our services.