T&M (Time and Material)
T&M (Time and Material) is a type of business model where the client undertakes to pay the contractor based on the number of hours and amount of materials used during the execution of the given task [1]. Such a model is being used whenever there is a complexity to give an exact estimation for the services or products.
T&M Services History
One of the first T&M meaning mentions can be found in the third version of the Project Management Body of Knowledge [2] – a compilation of theory and best practices in the world of project management. Currently, a Time & Material model is being widely used by businesses of all sorts due to its flexibility and high control opportunities. This way it can be a great fit not only for manufacturing (where it has been mostly used at the beginning) but also for IT projects and such.
The Main Features of the T&M Model
According to the aforementioned Time and Material definition, the final payment from the client is based on how much time and materials were used in the production process. It also implies that there is no clear vision of the final product. It also means that it could be adjusted to any kind of change during production.
This model requires a thorough communication between both parties and some quality control measures from the client. To successfully apply time and material contracts it is important to circle out the main requirements first. It is also crucial that both parties agree on the type of soft-and hardware to be used to track the time, effort, and material.
Cases When You Should Use Time and Material Model
You should consider applying a T&M model in the following situations:
- There are no precise requirements for the project’s execution process;
- Your project is a long-term one and there is a chance of the requirements change;
- Your project is connected to a business model that is yet untested;
- You are still going through a research phase with your project;
- You do not require a dedicated type of specialist;
- You have a limited budget (it can be a great option for startups [3]).
If you can agree with at least one of the previous statements, the chance is high you should consider learning about what is t&m model.
Reasons to Choose the T&M Contract
It would be a smart choice to get some T&M consulting before engaging with this type of model. While creating a draft for your Time and Materials contract, make sure you mention the following aspects:
- Labor cost. Typically a client is being charged a fixed amount of money for all workers, however, some discounts can be applied.
- A work hours limit. By setting a limit to the working hours you can ensure that you will not be overcharged due to the low efficiency of the workers.
- A financial limit. Even though the t&m definition implies paying the contractor according to the effort and time invested in the project, it is crucial to have a financial limit that you will not exceed.
Time and Material vs Fixed Price: Advantages and Disadvantages
A ‘time and material vs fixed price’ type of model comparison goes a long way back in history. Each model has its own flaws and benefits so let’s take a look at the most prominent ones.
T&M Model Benefits:
- Instant start of the development process. No need to determine all the details of the project right away;
- No overpayment due to the hourly rate. You will have to pay only for the actual working hours;
- Flexibility and customization. Add the necessary changes at any step of the process.
T&M Model Flaws:
- Approximate budget and timeline. It might be hard to estimate your budget right away.
It would be more appropriate to use this model when you are short on the budget or your project is a long-term one. For example, t & m hardware or software development.
Fixed Price Model Benefits:
- Settled rates. You can plan your expenses way ahead;
- Strict deadline. Get the project done when you need it to;
- Easier management. All roles and expectations are being assigned before the launch.
Fixed Price Model Flaws:
- No flexibility. All the aspects of the projects should be defined at the early stages.
Such a model would be your best option if you are looking for a simple and specific solution and do not have much time on your hands.
Companies That Successfully Used T&M Services
Due to its many benefits, the time and material model is being widely used by many companies. It is especially relevant when it comes down to software development and IT services. That is why companies like Google [4] are using the time and material software development model as a part of their outsourcing strategy.
Services of a T&M consulting company can also be used by the government institutions. For example, such federal agencies as DOD, FTA, and DISA [5] have successfully incorporated T&M contracts.
Time and Material in the Software Development Industry
In the past software development industry could only offer a fixed price model, however now, with time and material one, it is possible to gain incredible flexibility. By choosing this model you are guaranteed to get the job done faster and for a lower cost. As a bonus – you will get a really low risk of overpayment, due to the pre-decided financial limit. Finally, time & material model offers you great transparency, you will see what you are paying for.
See Also
References
- http://www.businessdictionary.com/definition/time-and-materials-T-M-contract.html
- https://project-management-knowledge.com/definitions/p/project-management-body-of-knowledge-pmbok/
- https://books.google.com.ua/books?id=R6vMDwAAQBAJ&pg=PA86&lpg=PA86&dq=time+and+material+for+startups&source=bl&ots=bDl8a5uERL&sig=ACfU3U3vleZCmFnDI0ttJkTJ66WhnSqhBQ&hl=ru&sa=X&ved=2ahUKEwi0n_XB-7XpAhUOwsQBHUHdBx04ChDoATAAegQICBAB#v=onepage&q=time%20and%20material%20for%20startups&f=false
- https://www.forbes.com/sites/johanmoreno/2019/05/31/google-follows-a-growing-workplace-trend-hiring-more-contractors-than-employees/#5ea0846447fe
- https://www.thebalancesmb.com/time-and-materials-contract-844534
