Do payment terms effect project design methodology?

Question

When working on a software project for a client, there are two ways in which this can be billed - fixed fee project, or per hour billing.

Does the choice of payment terms effect the design methodology you would choose to use?

For example, one of the benefits of Agile programming is that changes can be made very quickly, and there is less emphasis on documentation, particularly with regards to design up front. This is great for per-hour billing, but when working on a fixed-fee project, you want to avoid changes as much as possible, or bill extra for the additional work created.

In such a case, documentation and initial design become more important, as they form a great way of agreeing the exact scope of the project, and can be used to show deviations from design and therefore extra charges.

Do you tend to use different design methodologies for fixed-fee and hourly rate projects? If so, what particular methodology do you feel works best for fixed-fee projects?

Answer 1

This is great for per-hour billing, but when working on a fixed-fee project, you want to avoid changes as much as possible, or bill extra for the additional work created.

Or, and this is the Agile way of thinking, you adjust scope over time from "what the customer initially thinks they want" to "what the customer really needs." We do this by setting a fixed-fee up front based on a specific scope, then removing things they don't really need to make way for things they didn't know at first that they wanted.

Of course, this is entirely dependant on the release early and often principle of Agile. Without that, they will never see the product grow and see where their own priorities lie.

Also, this requires that you either sign a contract which allows for scope change (note: not creep) or you need to keep having them sign for individual changes to the original scope.

Another way to look at this is that it is per-hour billing but with the customer agreeing to how many hours you spend up-front. If they then want something that they descoped in favour of something they hadn't originally thought of, it will cost them more.

Answer 2

I think billing terms matter less than the type of customer you have. I've run fixed price and "per hour" projects with Agile and they have worked quite nicely (with customers I could approach and work with through the changes/iterations/etc.)

In both cases, you need to track the "hours worked" (note- this does -NOT- mean timesheets or recording every actual hour worked) and compare against the "estimate"

Also, I strongly encourage you to develop in smaller chunks and deliver frequently. You don't -need- to incorporate customer feedback. Delivering constantly develops a good cadence and good practices which will help the project in general.

Bottom line - No, I don't believe payment terms affect the methodology selection (it would be a 4th order effect at best :-)