Make-or-Buy Analysis
Make-or-buy analysis is a decision-making process that aims to determine the most cost-effective approach to obtaining the required products, services, or results for a project. By comparing the costs, benefits, risks, and other factors involved in producing the deliverables in-house against those associated with outsourcing the work to a vendor, organizations can decide whether to make the deliverables internally or purchase them from external sources. This analysis is essential to ensuring the proper allocation of resources, managing project costs, and reducing the likelihood of delays or disruptions.
Guide to Make-or-Buy Analysis - PMBOK 7th Edition
The Make-or-Buy Analysis is pivotal in many project management scenarios, as per PMBOK's 7th Edition. It primarily seeks to determine the most cost-effective solution: producing in-house (make) or purchasing externally (buy).
Why is it important?
It reduces costs, mitigates risks and enables a strategic utilization of resources.
What it is?
A decision-making strategy used by companies to identify if an activity should be produced internally or procured externally.
How it works?
The analysis involves an examination of all costs associated with 'making' such as production, labor and management; versus 'buying', including vendor contracts, delivery and management. The decision is generally swayed towards the least-cost option.
Answering exam questions
One needs to understand the cost implications of 'Make' and 'Buy', steps to perform the analysis, and consequences of the decision to select the correct answer.
Exam Tips:
Understand the concept and its purpose. Know how to compare costs of making vs. buying. Be aware that the analysis is not solely based on financial costs; factors like vendor reliability, ability to meet deadlines and impact on project scheduling are also valuable.
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