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Fintech Success With Rapid Application Development

In the previous article, “Enterprise Software Development on OutSystems Low-code Platform”, we discussed the benefits of low-code development using the OutSystems platform for businesses. In the article, we want to raise the issue of the most important aspects of enterprise development – speed and flexibility.

For financial companies, speed and flexibility are among the key criteria for successful software development. The thing is that many factors influence the work of the financial industry:

  • external – new trends in design, new conditions in legislation, pressure from competitors,
  • internal – changes in terms of service, internal processes.

And that’s not to mention that every year there are a multitude of new innovative and flexible fintech startups stepping on banks’ toes and eating away their market share.

In such conditions, it is vital to be able to quickly adapt to changing conditions. Change or die! This is the slogan of the years to come for the banking industry.

In the article, we will review, in detail, the task with which our customers come to us most often – the ability to quickly create and implement applications in the corporate ecosystem.

This tactic is called Rapid Application Development.

Why should banks consider Rapid Application Development (RAD)?

Research by Geneca addresses this question perfectly. The company interviewed 600 IT business people and found that:

  • 75% of the IT leaders admitted that almost all projects are doomed to failure from the first stage of development.
  • 80% stated that at least half of the time spent on the project was dedicated to reworking the functionality.
  • 78% said that business representatives should be more involved in projects, which will provide an opportunity to develop software that meets business requirements.
  • Only 55% clearly understand the business goals of their customers.
  • Less than 20% think that businesses need a clear definition of requirements.

Looking at these figures, it becomes obvious that substantial changes are needed in the field of corporate app development. Those who change their tactics will win. Financial companies definitely should consider the Rapid Application Development methodology. This approach solves all of the mentioned above technical and business issues both for back office and front office applications.

What is Rapid Application Development?

Rapid Application Development is a form of agile methodology. It focuses on quickly getting the result you need and is best suited in two cases:

  1. Developers are limited by budget and/or time.
  2. There are no strict requirements for the product.

Development is faster because specialists use the appropriate technical means and regularly clarify the customer’s requirements. In addition, a key element of RAD is a joint assessment of the result with the stakeholders.

Most characteristic features of RAD:

  • quick feedback from the business or end-users,
  • frequent release of prototypes or updates,
  • breakdown of the project into sprints,
  • flexible change of requirements.

You can’t apply Rapid App Development to any particular development model. RAD is an idea. Its essence is that we win because we consider development as something flexible, capable of quick change.

Rapid Application Development methodology

According to the RAD methodology, the development process is divided into 4 stages. These are steps designed to build a great application with minimal risk.

Define the requirements

Before starting development, stakeholders discuss project requirements, determine a budget and a deadline, set goals and calculate expectations. In the approach of RAD, neither stakeholders nor developers spend a lot of time on developing complete and detailed specifications.

The main principle of the RAD is the freedom to change requirements at any time while still working on the application. During the first stage, the “essence” of the application is determined, and its vision is formed. So the requirements are put forward according to this “essence” and “vision.”

Prototype development

At this stage, designers, developers, and business users work together closely. They create working prototypes of the application that meet all the product requirements or its parts.

Feedback gathering

After developers release the prototype and the beta version of the product, the stage of collecting feedback from users begins. The goal of this step is to improve the prototype version and make the product as useful as possible.

A curious fact: sometimes what was originally conceived by customers is completely unclaimed at this stage.

Having collected the feedback, the specialists return in step 2: taking into account all the changes and new requirements, a prototype is created again.

Delivery of the project

Having received positive feedback on the prototypes, the developers are finishing work on the project. They optimize the application and provide service stability.

At this stage, app developers perform such jobs as integration with the necessary systems, writing of documentation, maintenance, and support. All for one purpose: to release the application.

OutSystems as Rapid Application Development Tool

As we mentioned in the beginning, recently we have published the article “Enterprise Software Development on OutSystems Low-code Platform”. There we described in detail the advantages that companies receive in developing applications using the low-code platform OutSystems.

Now, we will focus on another important advantage of the platform – it is an excellent tool for Rapid Application Development.

All the platform’s functionality is honed for work on the RAD methodology. OutSystems is an excellent rapid mobile and web app development platform and provides all the necessary tools to quickly create enterprise applications.

But what really sets OutSystems apart from other platforms and makes it completely dedicated to Rapid Application Development is the ability to integrate with any service. This greatly enhances its development.

Another feature of OutSystems is that with the help of the platform you are brilliantly able to  create prototypes and process feedback for each separate feature. And this is a fundamental requirement in RAD.

What’s essential for RAD to work?

If your organization wants to apply a Rapid Application Development approach,  your development team should wisely consider the following requirements.

Must-haves:

  • Close collaboration between the business and developers
    The foundation of RAD is the active cooperation of the customer with the developers. If the customer isn’t involved in the work, doesn’t show any interest in the project, then RAD is not the best idea.
  • Experienced Project Manager
    Working without clear project requirements isn’t so easy, is it? An experienced project manager should always be at the head of the project. Without this person, development with a RAD methodology will turn into a series of prolonging changes without an end in sight. A completed working application won’t see the light of day.
  • Available Senior developers
    The RAD methodology assumes instant adaptation to new requirements. Therefore, this methodology is not the best option for novices. Only advanced level developers will work well in it.
  • Medium size project
    For development using the RAD methodology, medium size projects are suited best. For larger projects, this methodology is not suitable, since with a large number of requirements it is very difficult to make changes flexibly and fast. However, if the project is small, then it’s better to use another methodology.

Rapid Application Development benefits – the pay off

Though the RAD approach to corporate application development has its constraints, it pays off the efforts. If a financial organization is able to facilitate the approach inside its structure, the benefits will be quite immense.

Quick project delivery

Thanks to the iterative approach, continuous collection of feedback and the flexibility to make changes, a final version is achieved 10 times faster than with other methodologies.

Development cost reduction

The RAD model reduces the cost of application creation by up to 80%. Development time is considerably reduced, and in case of necessity for overall changes, the project doesn’t need to be developed from scratch.

Easier to make changes

Usually, numerous modifications in projects are not encouraged. Not in the case of RAD. In this development method, changes can be made even in the full swing of development.

Flexible adaptation of new technologies

If development is in full swing and it turns out that some technology can assist in solving the difficulties encountered, then it’s rather difficult to implement. There are too many risks associated with it because you need to go back and make changes to the requirements. With RAD, this issue is easily resolved – at any time you can adopt new technology.

More business engagement – better customer experience

The RAD supposes the active participation of the end-users in the project. Thanks to the collection of reviews and frequent updates, developers make sure they are delivering the product that the customers expect.

The best market fit

The main question of the Rapid Application Development model: what exactly does the customer need? The goal of the developers is to create a valuable and required product, and not another miracle application, which is unclear for whom and why.

Risk management

With the help of RAD at an early stage of project development, certain risks can be uncovered. Early assumption of risk gives more time and possibility to avoid its negative consequences in future.

Conclusion

Rapid Application Development is an outstanding enterprise application development model. It considerably reduces the gap between the development team and business and can perfectly be embedded in a business leverage strategy.

In contemporary conditions, financial companies need to consider using the RAD model. It will help:

  • avoid project failure,
  • not to spend a huge amount of time on software development,
  • to develop software that meets the requirements of the business,
  • provide developers a clear understanding of the company’s business goals.

It is important to remember: if you meet all the required conditions, the RAD methodology will give you incredible speed up and flexibility advantages throughout the entire development cycle of your product.

Business planning development under coronavirus conditions

Like every crisis, the coronavirus disease pandemic had a beginning, has a middle, and will have an end. This is not like a movie, however, where you know the running time before you buy your ticket. There are a lot of scenarios of the coronavirus pandemic spread, but no one knows which of them will exactly play out.

COVID-19 is presenting major challenges to people and organizations worldwide. As governments consider new rules and policies trying to protect their citizens, business leaders are also managing the crisis on behalf of their employees, customers, and stakeholders, preparing for the new normal, by considering the capabilities they’ll need in order to emerge stronger on the other side of the coronavirus outbreak.

In order to reach the safe shores and recover from negative COVID-19 pandemic impact, CEOs have to find the right balance between the dangers of coronavirus and work their business and employees have to do.

Business planning. Don’t cross the marsh blindfold in the dark 

The main goal of any business or entrepreneurship is not to survive, but to thrive under different conditions, good or bad. And turn today’s costs into tomorrow’s revenues. That is why business planning is important. Especially being thrown into conditions, like we all have appeared today.

Many companies have worked on contingency plans during the last few years, to be prepared for various types of geopolitical or environmental threats. The plans are implemented now. But, as the coronavirus pandemic unfolds, it becomes clear that they need thorough reconsideration.

CEOs and other top managers try to enhance and adapt them by replacing business planning models or even changing the business planning process itself. Such decisions are happening on a continual basis, as new information shapes and reshapes our collective conscience and business environments.

Building a comprehensive up-to-date plan is the major concern for CEOs and other executives. Now is also the time to accelerate efforts to estimate the financial impact of COVID-19 on your business to minimize impact to the bottom line. A full rapid response considers all the functions of an enterprise:

  • Commercial. You should understand whether there will be an immediate shift in consumer behaviors because of COVID-19. It is necessary to determine whether customer policies and priorities require revision, how your business can improve consumer communications, and the steps needed to protect your brand and improve long-term B2C relationships.
  • Financial. Business planning steps in finance should be modified to consider realistic and worst-case scenarios. Profit-improvement initiatives should be developed to cover anticipated revenue gaps, such as near-term procurement efforts and supply chain cost reductions.
  • Human capital. Business planning importance in HR is no less than that in any other sphere. It is vital to confirm the safety and support of all employees and have a clear employee communication strategy with two-way feedback. HR policies should be adjusted to provide more flexibility to your workers in the time of crisis.
  • Operations. Rapid response to changing customer demands gives your sales team an opportunity to adapt and win the market share. Careful business planning on this stage maintains the safety of manufacturing and helps to avoid possible shutdowns. That may mean updating the environment, health, and safety protocols for workers.
  • Technology. The tech team should make sure your network can handle sizable work-from-home conditions and that workers are maximizing their use of virtual meeting spaces and other communication platforms.

How CEOs can fight coronavirus effects 

To succeed in the pandemic survival race – in these uncertain circumstances – your business has no ready-made receipt of planning. The following tips are given by CEOs when the coronavirus outbreak hasn’t yet become disastrous. But the guidelines of how to act under uncertain conditions you may find useful for your business planning development.

  • Be agile and innovative. Spencer Fung, CEO of Li & Fung, says that there’s no way anyone can predict what will happen over the next five years. Does he ask how we are supposed to choose our investments? The solution he came up with had three parts. Being humble and looking for disruption outside the industry are the first two, and the third is being extremely agile. Under uncertain conditions, CEOs should influence a change of mind-set: first in their own management team, then in their employees, and in their customers and suppliers
  • Stay flexible. Linda Hasenfratz, CEO of Linamar, thinks that in any time of uncertainty – including right now – there is obviously a lot of uncertainty around technology and politics and trade.  And in times of uncertainty, it is really critical to stay as flexible as possible in every way, not just in terms of equipment but in terms of strategy. She adds that the flexibility of strategy and business should directly correlate to the level of uncertainty.
  • Lookout for disruption. Segun Agbaje, CEO of Guaranty Trust Bank, admits that when he started in banking, whenever they carried out competitor analysis, all they would look at were banks. Today, it is necessary to take into consideration fintechs, telcos, and anybody that would do fast-moving consumables. He adds that, basically, anyone who has the potential to use mobile wallets and mobile technology is a potential competitor. He says that even small start-ups can become a disturbing wave for your business – even if they do not realize it.
  • Learn from uncertainty. Silvio Kutić, CEO of Infobip, says the majority of the things we do every day, we are doing for the first time in our lives. And we are in a continuous learning loop because of new technologies, new customers, and the ever-changing competitive landscape with lots of regulation added into the bargain. He concludes that uncertainty is a driver that gives a new powerful thrust drastically changing our point of view.
  • Focus on execution. Kasper Rørsred, CEO of Adidas, admits that not every decision can be long-term. He thinks a lot of companies underestimate the importance of getting the daily job done in a way they can be proud of. To his opinion, leaders think they get famous for strategy, and they don’t really focus on everyday execution, because they think they don’t get famous for that. Uncertainty procreates fear and a lack of confidence. Clear and understandable algorithms help to regain control over the situation.

Business planning strategies. Constantly keep changes under the radar 

Under the conditions of pandemic trajectory uncertainty, it is vital for businesses to constantly monitor the background and make up-to-date adjustments both in short-term policies and long-term business planning development. It is evident that COVID-19 outbreak suggests that businesses should activate first-level contingency procedures that include mitigating immediate threats to staff, such as:

  • restricting nonessential travel to avoid stranding travelers due to quarantines,
  • reviewing and even deferring nonstrategic investments,
  • planning for a business environment that’s equivalent to a quarter-of–a-year recession.

Alongside tactical steps, CEOs should bear in mind that a comprehensive analysis of the situation is the winning ticket. But what crucial points demand close attention for building an accurate business strategy?

  1. Understand systemic risk and how it affects your business during the pandemic. Systemic risk is about how a threat can jeopardize an entire system or systems. For example, many businesses have seen the systemic threat of cybersecurity risk significantly impact their entire business systems.
  2. Anticipate the systemic changes caused by COVID-19 and the events and opportunities that affect entire systems, including your business system.
  3. Focus on how things work together to outline how this drives systemic risk and changes in complex systems.
  4. Focus first on the forces of change that have high levels of certainty and predictability on your markets, e.g., economic, regulatory, digital, consumer behavior, competitive reaction.
  5. Don’t ignore small, or micro-level changes. They often have an outsized impact on complex systems.

Conclusion

Though there are a lot of parameters and conditions that are hard to forecast, systemic analysis and quick response to changes can ensure your business from COVID-19 catastrophic impact.

We hope that in this article you will find the useful milestones for your business to mark the way amidst current uncertainty.

Coronavirus lands an uppercut. Can business recover from a knockdown?

Our planet reminds us of a punching bag for the last several months. COVID-19 lands severe blows worldwide. Tens of thousands of reported infection cases; thousands of deaths, caused by the coronavirus; national boundaries lockdowns; drastic quarantine measures; lack of medical supplies and personnel have become a terrifying routine of daily reports.

But behind all these horrible figures and events a ghost of global economic recession and crisis flies its flags. And in spite of the fact that a vague hope to win COVID-19 is dimly visible, there are a lot of problems waiting at the front door to deal with.

Coronavirus social effects. A painful injection in overconfidence

In its early stages, COVID-19 looked nothing like a crisis. Even though several scientists had been warning of the potential for a catastrophe for weeks, the initial emergency declarations were met by skepticism by both the public and many policymakers. They assured that neither people nor economies should panic and stop because of the virus.

The COVID-19 crisis could change this in two ways. First, it has already forced people back to accepting that expertise matters. It was easy to sneer at experts until a pandemic arrived. Second, it may return humankind to a new seriousness. We are more fragile than we thought!

This loss of innocence, or complacency, is a new way of our existence that we can expect to change our interaction with the world. We know now that touching things, being with other people and breathing the air in an enclosed space can be risky.

How quickly does that awareness recede? It depends on people, for sure. But it can never vanish completely for anyone who will live through this year. It can become second nature to avoid shaking hands or touching our faces. And we may all find we can’t stop washing our hands. The comfort of being in the presence of others may be replaced by a greater comfort with absence, especially with those we don’t know intimately.

In any case, coronavirus pandemic made certain things obvious:

  • The “superpower” title isn’t secure from the disease.
  • Europeans are not so well-educated as it seemed.
  • People can do well enough without traveling abroad and successfully find what to occupy themselves with.
  • Affluent people are not less susceptible to the virus than the poor ones.
  • Billions of dollars can be spent on people without bureaucratic impediments.
  • Medical personnel is worth more than football or hockey players.
  • Oil is useless in society without consumption.
  • People understood how animals feel in zoos.
  • The planet is recovering quickly without human interference.
  • The majority of people can work from home.
  • It is not difficult to follow the rules of hygiene and wash hands.
  • The world is full of GOOD people.

Meanwhile, overconfidence and negligence in some cases cost a lot. Catastrophic situation in Spain and Italy is a vivid example. But the justifiable concern about getting infected is having an impact on social structure and sense of mutual responsibility.

Though some country leaders underestimate COVID-19 danger, deny the necessity of borders closure and the existence of virus itself, common sense wins in the majority of cases. Politicians, celebrities and ordinary people try to overcome the hardships of pandemic together, learn to hear one another and become more attentive to the needs of others.

Coronavirus economic effects. How to foresee the uncertainty?

The ongoing spread of COVID-19 has become one of the biggest threats to the global economy and financial markets. Fears of the coronavirus impact on the global economy have rocked markets worldwide, plunging stock prices and bond yields.

The Organisation for Economic Cooperation and Development (OECD) in its March report downgraded the economic growth forecast in 2020.

Fig 1. Global economic growth slowdown. Source: OECD (March 2020).

But the major downside of the attempts to foresee the global economic recession scale is that nothing like the COVID-19 pandemic has happened before. Business analysts can take into consideration the current situation and compare it with the crisis in 2008. But coronavirus leaves too many variables in the equation to find a definite answer. Even if coronavirus resurgence is left behind brackets.

With so many unknowns surrounding the trajectory of the epidemic, and the response from government and business, forecasters cannot aspire to precision. Now, experts can only accurately count losses and state certain downfalls, such as:

  1. Health care crisis that turns medical care challenge into an economic one. Health-care workers are on the front lines of the fight with coronavirus. They could become infected and need to self-quarantine. The health and safety of the population remain the highest policy priority. Governments and politicians need to make sure that sufficient diagnostic, protective and therapeutic equipment is available.
  2. The demand side of the economy is primarily hurt. As businesses shutter their operations, people can no longer go to work and often lose their jobs and incomes. Their demands shrink as well. Small and medium businesses, especially in low-margin industries such as restaurants, will be among the ones most acutely hit by the economic fallout.
  3. High uncertainty over the economy reins that makes economic fallout deeper. Businesses are pulling back, not just because they have no customers, but also because they don’t know how bad the situation may become. Families are cutting spending because they are worried about drastic drops in their incomes.
  4. States and local governments have to deal with the fallout from the pandemic. Many people will have to quickly rely on public services. And, local businesses such as restaurants, hotels, and event venues are shuttered for the time being, reducing employment, jobs and tax revenues.
  5. The problem of massive economic inequality. Generally, lower-wage workers with less education and rural households have fewer economic resources – incomes and wealth – than higher-income workers. Survival and recovery of the former ones are much more questionable.

Focusing on the stock market is not the best solution. Investors have oscillated from panic to euphoria and back to panic. And the stock market has gone through massive gyrations over the past few weeks. But boosting the stock market will do little to ordinary people’s current and future financial health.

Coronavirus disease. The only vaccine is a gradual recovery 

The coronavirus now appears to be infecting economies as quickly as it does people. And like any infected person, any “infected” economy needs imminent treatment. To avoid emergency surgery after the pandemic end, gradual recovery steps should be taken now. The realities of new, after-coronavirus normal fully depend on what is done today.

Among the industries seeing the greatest impact from the fallout are hospitality, travel, education, media, and entertainment. Meanwhile, production firms in agriculture, factories, mines, and utilities reported some uptick in revenues.

Nevertheless, business leaders across the board said they’re taking new measures to curb the impact of the virus. That includes:

  • Focusing on facts.
  • Communicating more regularly with employees and stakeholders.
  • Adopting new health and safety procedures.
  • Stabilization of supply chains.
  • Making short-term and long-term plans.
  • Canceling major events.
  • Halting business travels.

But how to lead a business from the disastrous COVID-19 crisis to the new normal? A company should cross five horizons to beat coronavirus pandemic post-effects. According to McKinsey, they are Resolve, Resilience, Return, Reimagination, and Reform.

Fig 2. Five steps to the new normal.

The coronavirus outbreak is undoubtedly a story of human tragedy. But it will cause significant harm to the economy, too – and the true scale of this cost has only just started to emerge.

Conclusion

In spite of the fact that some experts predict that coronavirus can become endemic and its recurrence will cost many lives every year, let’s hope for the best.

Finally, we begin to understand that affluence and power do not shield from diseases and viruses. And only consolidated efforts of governments, businesses, and ordinary people can stop global disasters.

COVID-19 pandemic became the chemical catalyst, which has pushed the human mind and way of life alteration. And it very much depends on a person, what changes there will be.

Coronavirus: health insurance providers’ thorny crown

Millions of people have lost jobs because of coronavirus effects on business. And they are often deprived of the health coverage that came together with those jobs as well. More suffer from their work hours reduced or have to bear drastic pay cuts that make monthly premiums – that may have been manageable before – out of reach.

The coronavirus disease pandemic has added more costs to the healthcare system, employers, and health insurance providers as well, though that will depend on how many people are infected and how many become seriously ill. Let’s take a closer look at the coronavirus impact on the health insurance system.

Coronavirus outbreak = health insurance breakdown?

The cost of providing increased COVID-19 coverage to policyholders, coupled with the overall higher frequency and severity of claims to treat the virus and exacerbated by policy cancellations, is expected to have a profound impact on the profitability of the insurance industry.

When the 2020 health insurance policies currently in place were priced, there were no premium increases in anticipation of COVID-19. It is uncertain whether delays in elective surgeries and other non-emergent treatments in addition to the savings resulting from telehealth will have a significant impact to outweigh the increased costs of coronavirus pandemic.

There is still a great deal of uncertainty regarding the timeline to contain the COVID-19 outbreak and the ultimate costs for the insurance industry to pay for such claims. It is also uncertain whether the government will provide relief to the insurance industry. COVID-19 has the potential of increasing future health insurance premiums significantly, but the final impact will be determined by the outcome of the aforementioned variables.

Will coronavirus make health insurance companies skyrocket the premiums? 

Evidently, the coronavirus disease outbreak is going to cost health insurance providers a lot of money. If it doesn’t get under control soon, that might mean dramatic increases in insurance premiums next year. Some reports predict that employer premiums will rise in 2021 by 40 percent or more, if federal actions are absent, which is certain to alarm many employers.

That’s the message which is speculated among some experts. It is very true, that health insurance payouts have drastically increased. The cost to health insurers for covering COVID-19 testing and treatment, especially as many of them waive cost-sharing for patients, could be enormous.

But insurers can’t legally hike their rates astronomically next year to make up for those costs. Their proposed rates should reflect their expected costs in 2021, not what they spent in 2020. State regulators can push back against proposed hikes that they don’t think are justified by the anticipated costs for the upcoming year.

2020 insurance rates have already been issued for most employers, and they include almost no coronavirus claims expenses. This means most employers will see a minimal impact to their existing 2020 rates.

The real issue is how COVID-19 will affect 2021 premiums. Experts say some major questions need answers before they could assess what will happen to premiums in 2021:

  • Is the pandemic over by 2021 or is it still going?
  • Do insurers need to use their financial reserves to cover coronavirus costs?
  • How many elective surgeries are getting postponed into 2021?
  • Will governments do anything to help health insurers absorb their losses from the pandemic?

Has coronavirus put health insurance companies in its bear hug? 

If the virus remains and people continue to get sick, be tested, or go to hospitals because of COVID-19, the insurers could fairly assume they will continue to have new expenses related to the outbreak next year. That scenario can lead to the worst consequences with double-digit increases potentially being the norm. Potentially, but not necessarily.

For most employers, this means four or more months of coronavirus expenses that will affect their base. And while this may lead to some premium increases, several countervailing factors will compensate the COVID-19 expenses and minimize potential rate increases.

  1. Insurance regulators rarely include one-time events in base claims. Assuming that the coronavirus outbreak is a one-time event, it means that 2021 insurance rates are not likely to skyrocket because of the current crisis.
  2. Social distancing has lowered overall claims expenses in other areas, such as office visits, elective surgeries, lab tests, outpatient care, and inpatient stays. This will outweigh any increases from COVID-19.

Insurers will experience significant losses from unpaid employer premiums. But because health insurers are required to maintain minimum “risk-based capital” reserves to cushion unforeseen disasters like COVID-19. This should, in its turn, compensate related revenue decrease and not affect employer insurance rates.

Insurers are often criticized for accumulating large reserves. But the reserves make it possible to protect subscribers and providers during catastrophes and ensure that they can cover healthcare expenses regardless of higher claims or lower revenues without influence on current rates.

Conclusion

But that is not the end of the story.

Even though most employers should not suffer severely from large premium increases, there will be some increases. Many employers will be tempted to pass coronavirus-related insurance losses to their employees’ shoulders to soften companies’ financial impact.

The question arises: whether employers should expect workers to compensate more of the burden by passing on health insurance cost increases?

How to choose cooperation model in IT

Nowadays, the vast majority of companies have information technologies as a non-core asset. Consequently, the opportunity to transfer these non-core assets under the management of a professional external partner and free up resources of the company for priority business areas – looks very attractive.

At this point, the customer is faced with several issues as to how to choose the most effective cooperation model, how to evaluate this approach from a financial perspective rather than investing in the development of his/her own team of IT specialists?

We continue a series of blog posts devoted to the topic of outsourcing software development. In this article, we decided to reveal the topic of cooperation models in IT outsourcing and how to use them efficiently. Moreover, you can check our previous article “7 main tips to avoid startup failure”.

Outsourcing partner: models of cooperation

Currently, there are 4 basic models of cooperation that are used in all the world markets:

  1. Fixed-price
  2. Time and Materials
  3. Dedicated team
  4. Hybrid

Fixed price

The main criteria of this model are – a fixed budget, a constant project scope, an established time interval (4 weeks, 2 months, etc), also a possible compromise in quality.

The fixed-price contract is perfect for any size projects, where requirements, specifications, and schedules can be clearly defined before the start of project development since it is nearly impossible to make adjustments when the project started.

Typically, this model is also used for short-term software development tasks that do not require close monitoring by the client.

Time and material

The peculiarity of this model lies in the absence of a precisely defined project cost – the customer pays the actual amount of work performed by the IT outsourcing company under the time spent and the hourly rates of the contractor’s specialists.

Both parties can flexibly approach the changing requirements, conditions, and priorities of the project and, as a result, can quickly adjust the scope of work and terms.

The model is suitable if the customer’s idea is associated with new technologies (not with fully developed markets), and he/she intends to provide direct control over the project and ensure the team with specific materials, also when the scope of the project is unknown or the implementation will take several months or even years.

Dedicated team

Dedicated Team is a business model that implies both parties mutually agree with the workload and requirements of the project, indicating the necessary amount of time. At the same time, the outsourcing company provides IT specialists that are fully focused on the project and meet the requirements of the customer. The client has full managerial control over the project and the team. Moreover, the contractor performs the functions of a staff recruiter and administrative support.

The fundamental difference of the dedicated development team is its long-term nature: partnerships between the customer and the contractor are conducted for a long time and can involve the implementation of a set of projects.

Hybrid model

The approach includes the basic principles of Time & Material and Fixed Price models.

Our company, RNDpoint, applies the hybrid model in practice. We can share with you 2 types of hybrid models that we use. However, it is worth noting that the choice of model is highly dependent on many factors such as estimated time, amount of work and resources, the complexity of execution and so on.

The first type is suitable for longer and more expensive projects. At the beginning of the project, we start working according to the Time & Material model. Then, when a certain part of the functionality is ready and we can plan our next sprint more clearly, we discuss the edits with the customer and schedule further fixed price sprints.

The second type is better working for small projects or startups. It implies  that the company and the customer agree on certain arrangements. For example, to do the specific tasks for a fixed price no matter how many hours it takes, and also completing other minors (or not) tasks for Time & Material strategy. The model is successfully working because the customer can pay a lower cost for Time & Material assignments and be ready to pay for a fixed part of the project. As a result, it is easier for startups to control their expenses.

Thanks to this model, the client has an opportunity to be flexible and, at the same time, look through every detail, thus avoiding too many edits in the final project.

Conclusion

The model of cooperation with outsourcing IT partners is the client’s decision, which depends mainly on the type of project and the predictability of the time and the cost. The fixed price model would be the best choice for short-term development with a clear description of the functionality and the concept of the final product. Three other models would be better for long-term cooperation, and also in case, the customer is going to change the workflow.

Be that as it may, the client should remember that the cooperation model that worked well for other organizations and a particular contractor may not always be the best choice to launch his project, because everything depends on the main project features – time, money and resources.

How to write an effective scope of work?

Step-by-step Instruction: Scope Of Work For An Outsourcing Company

No matter the size of the company you have, one issue comes to mind when cooperating with an outsourcing provider. That is creating a precise project plan. As a result, both sides lose their most valuable resources like money and time, while becoming frustrated. Often the reason lies in the simple things – both parties don’t understand each other because they perceive the information in different ways.

To resolve this issue effectively, a well-developed scope of work (SoW) should be conducted.

This means that whenever the company enters into a contract with the outsourcing company, an agreement on the terms of reference will help to clearly determine what both sides can expect from future cooperation.

What is SoW?

Scope of Work (SoW) is a clear and thorough contract signed between the companies, which defines the division and the exact type of work that will be provided under the formal agreement for desired services. The contract also includes specific tasks together with deadlines and other requirements.

The agreement records the project requirements, responsible people, and obligations that are expected to be provided by both parties during the project activities. Furthermore, the document assists the companies in avoiding ambiguities which can lead to disputes on both sides.

Tips to write an efficient scope of work 

Your scope document template should be understandable and precise. Then, try to accurately determine the scope of needed services and adequately assess the capabilities of both the outsourcing team and the project, in general, before signing an agreement. Once you do this, you can develop a contract and ensure you maximize the mutual benefit.

Now, let’s look at the main points needed to make up the scope of work:

Complete a brief statement that could describe all the business needs and provide a short description of the services you intend to use.

Make an analysis of your company’s goals. Then, you need to create a good competitive proposal of your business, while analyzing the advantages and disadvantages of the competitor’s firms. Also, do not forget to select the priorities. Consequently, you will be able to bring this important information to your IT partner and discuss the vision together with the team.

As a customer try to describe the desired results or outputs as clearly as possible. Ask your outsourcing partner to describe each functionality and process thoroughly, even if it involves a lot of time and resources. Then, you will be able to make a complete and understandable list of services or work to be done. We all know of those cases where the service is provided, and the functionality works perfectly, but the goal is not achieved.

Start with defining the governance structure and then, give an outline of the project management procedures. Furthermore, you should sync with the outsourcing team in order to assess their capabilities.

If it is possible, give examples to better illustrate your idea or desired effect. It will give a better understanding and improve communication. Share some pre-prepared ideas, which may be helpful for an IT outsourcing team to assess the project and make its own assumptions.

Try to set realistic deadlines for each part of the project while taking into consideration the number of team members, their competitiveness, workload, amount of tasks, capacity, and everything that you have to use during the project. At this point, your IT partner will help you, as they are able to provide all the necessary information about the available team for your project.

From that point, the project cost goes for developing the application, resource expenses, overheads, pricing assumptions based on fixed-prices or time and materials project, payment terms, and schedule.

Mentioning the warranty terms, the maintenance agreement, the service levels, and other conditions will facilitate the security level of the contract.

Set the list of final outcomes that are expected to be presented by the IT outsourcing vendor to fit the company’s goals at the end of the project.

Scope of work vs statement of work 

Companies tend to get confused about these two quite similar combinations of words. However, they are absolutely different in terms of meaning.

The statement of work is a more general legal document that defines the goals and objectives of the project while also including the detailed scope of work.

The scope of work provides particular details such as lists of tools, resources, deadlines, examples, and purposes.

Conclusion

To summarize, the scope of work documents lays the foundation for a future successful project. Each paragraph of this document requires careful attention, however, do not forget to keep the facts and the most important information understandable. The language to describe your scope of work will present your organizational values and professionalism.

Ensure that the scope of work complies with all the above-mentioned points review this instruction.

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