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Make-or-Buy Analysis

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A Make-or-Buy Analysis is the structured decision-making process used to determine whether project deliverables should be produced internally (made) or acquired from external sources (bought). It involves collecting data about the product or service requirements and evaluating available alternatives based on cost, capacity, capability, risk, timing, and strategic alignment.

Purpose and Use in Projects

This analysis supports procurement planning by identifying the most feasible and cost-effective option for delivering a particular component of the project. It ensures that project teams focus internal resources where they bring the most value, while leveraging external vendors when advantageous.

Key Factors Considered

  • Cost Comparison – Direct and indirect costs of making versus buying.
  • Resource Availability – Internal expertise, capacity, and infrastructure.
  • Time Constraints – Lead time differences between internal development and external procurement.
  • Risk Assessment – Quality risks, dependency risks, and integration risks.
  • Strategic Fit – Alignment with long-term organizational capabilities and objectives.

When to Apply

  • When introducing a new component or capability into the project.
  • When internal resource limitations affect timeline or quality.
  • When external vendors offer cost or speed advantages.

Example Scenarios

Software Project

A team evaluates building a custom authentication system versus integrating a commercial identity provider like Okta. The commercial option offers faster implementation and proven security, making it the preferred “buy” decision.

Construction Project

A contractor decides between fabricating steel beams in-house or subcontracting to a supplier. The in-house option provides better control, but outsourcing may reduce costs and speed up delivery.

Mermaid Diagram: Make-or-Buy Evaluation Flow

flowchart LR
    A[Define Requirements] --> B[Identify Options]
    B --> C{Make or Buy?}
    C -->|Make| D[Assess Internal Capabilities]
    C -->|Buy| E[Evaluate Vendors]
    D --> F[Cost, Time, Risk Analysis]
    E --> F
    F --> G{Decision}
    G --> H[Document and Proceed]

Why Make-or-Buy Analysis Matters

  • Supports Procurement Strategy – Informs whether to contract externally or allocate internal resources.
  • Optimizes Cost and Efficiency – Helps select the option with the best value proposition.
  • Reduces Project Risk – Identifies capability gaps and supply chain dependencies early.

See also: Procurement Management Plan, Cost-Benefit Analysis, Risk Management, Requirements Management Plan.

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