Make or buy Analysis and Expert Judgment

April 10, 2010
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Introduction

Whether part of the project deliverables is to be created/ produced/ developed in-house, or the item could simply be bought from some agency from an external agency is a crucial decision for minimizing risks to a project’s success. The projects exact scope and the requirements for the deliverables define the project outcomes; expert judgment is needed to determine what trade offs is to be made in these make-or-buy decisions.

Make or Buy Analysis

It is a crucial exercise for the success of a project to determine if parts, including which specific parts, can be obtained from parties outside the project organizations that simultaneously increase the probability of success of the project. This make or buy analysis exercise clearly demarcates the items that could be bought off and the items that must be handled by the project team. These decisions need to be made based on the needs of the project strictly. For example some parts to be assigned for procurement may still be made inside the buying organization. But the resources needed for doing that specific activity may be deployed elsewhere and thus the outcome would be delayed to the time when these resources would be free to work on the item. Schedule constraints rule these decisions.

But, budget cost constraints are also equally important. Costs involved in procurement of the item amounting to more than the cost of the item to be done inside the organization obviously do not make sense. Schedule pressure or threat of penalty in delayed delivery may still prompt a more expensive decision. The total effective cost thus needs to be taken into consideration when making these make or buy decisions. Total cost amounts to the actual cash spend on the items as well as the indirect costs involved in all the planning, administering and other indirect costs that makes the procurement process happen.

Expert Judgment is very important in making these decisions. There is no numerical analysis possible that can give you a black and white answer to the crucial question. The question being to buy what pieces of the project outcome, at what times, will ensure a high degree of success for the project. These are more qualitative calls that need to be made by experts. Experts must have not only subject matter expertise but experience in making such a call is that minimize risks to a project. Expert assistance is also called for in determining the procurement, process, contacts and all the rest of related areas that ensure successful procurement and the successful completion of the project in its turn.

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