How to Determine a Make Vs. Buy Decision

Businesses often must decide whether to develop new systems or products or outsource them to a third party. This is sometimes called the “Make Vs. Buy" decision. This article will discuss ways businesses can determine whether it is more beneficial to develop their own product or service, or to hire another company to do it for them.

Instructions

Difficulty: Moderate

1. Determine the scope of the product or service. This means you must understand the primary and auxillary functions the product or service can offer, what it can do and what it can't do. Define minimum performance goals for the item.
2. Determine whether the organization possesses the resources to make the product. Now that you know what the item can do, you can define whether you can afford to produce a product that can meet those goals. Resources needed may include time, money, properly trained personnel, and equipment. If your company does not possess these capabilities and resources, consider outsourcing the development to a vendor.
3. If resources are available, develop the product or service in-house. Commit appropriate project resources and implement project management fundamentals to ensure the project results are what the company expects. Project management endeavors consist of tracking the project in terms of cost, schedule, and performance. The project should stay within budget (or as close to budget as possible). It should also be managed to stay on schedule. This ensures product/service delivery on time. Finally, the performance must be closely tracked and validated, to ensure that the results match the planned requirements. The end product or service should do what it is supposed to do.
4. If you're outsourcing, submit Requests for Proposals (RFP’s) to different vendors to determine their capabilities, and how much they will charge for the project. Use this bidding process to find the most capable company at the best price. This doesn’t always mean cheaper is better. Organizational leaders must strike a balance between performance and cost.
5. Create lessons-learned documentation for the next time a similar development is undertaken. After the product or service is developed (either in-house or by another vendor), leaders and managers from the organization should create a file of lessons-learned. This documentation may assist future decisionmakers with the “make vs. buy” decision by demonstrating how a decision was made under a particular set of circumstances. One of the goals of any organization should be to continue to learn so that the company gains greater efficiency over time.