Dwarves specializes in building custom software, where complexity makes project pricing challenging. Traditional approaches like "Fixed price" and "Time and materials" (T&M) often fall short of building the best software within a responsible budget. This led us to adopt Fixed-budget, Scope-controlled (FBSC). The technique is originally from Atomic Object.
Traditional models and their drawbacks:
Fixed price
A Fixed price model locks the total cost and scope upfront, with quality being the flexible variable. The assumption is that the initial estimate is perfectly correct. The primary risk lies with the Consultant, potentially leading to inflated costs or compromised quality if estimates are wrong. New information often causes conflict over scope changes, discouraging adaptability.
Time and materials (T&M)
In T&M, the client is billed for hours worked, often without a strict financial ceiling. Scope and quality are static variables, while cost (and timeline) are flexible. The assumption is the client can afford whatever it takes. Risk is primarily on the client, and the consultant has less incentive for efficiency or budget monitoring. New information typically adds more scope and cost or is ignored due to budget constraints.
Our approach: Fixed-budget, scope-controlled (FBSC)
Recognizing these limitations, Dwarves uses FBSC. We define a responsible budget and timeline upfront but do not fix the entire scope initially. Budget and quality are static variables, while scope is flexible. The assumption is there are always more ideas than money, so we prioritize building the best product for the budget by learning and reassessing scope regularly. Risk is shared, reducing it for both parties. New information allows scope to flex as priorities are adjusted, often moving features to later releases without affecting price or schedule.
How FBSC works
- Understand the budget: A clear budget is set early to define realistic solutions.
- Focus on value with staged development: Scope is managed via staged rollouts, prioritizing core features for the initial release to maximize success and gather feedback.
- Collaborative management: Weekly reviews with clients track hours, features, financial health, and progress transparently, continuously incorporating new information.
- Handle scope adjustments: If changes risk exceeding budget, remaining scope is reviewed with the client, making joint decisions (re-prioritizing, reducing complexity) to stay within the budget instead of automatically issuing change orders.
This active, weekly management fundamentally differs from traditional models.
The benefits of FBSC
FBSC fosters a better relationship and results in a superior product. Sharing risk, actively managing the budget, and adapting scope lead to greater collaboration. While the budget is not a fixed price, it's a target we actively work towards. Dwarves consistently delivers valuable software within FBSC budgets, empowering us to build better products that effectively meet evolving user needs by incorporating new information and adjusting throughout development, while maintaining financial control.
Internal considerations for FBSC
Effective FBSC execution requires focus on key areas:
- Maintaining quality: Defined via client-aligned metrics, using a "definition of done" and tracking KPIs.
- Managing scope: Maintaining a transparent, prioritized backlog and documenting decisions.
- Building client trust: Explaining FBSC benefits and showing value through staged development.
- Setting realistic budgets and timelines: Based on discovery for MVP, estimating with buffers.
- Handling major pivots: Collaboratively assessing impacts and redefining goals/scope if needed.
FBSC aligns incentives towards building the best product within budget through flexibility and responsiveness.
Next: Set the budget
