Make-or-buy decisions, Business Law and Ethics

Make-or-Buy Decisions 

Make or buy decision is a strategic decision that any organisation has to make, between producing an item internally and buying it externally. 

With the changes in the approaches of contracts, the issues related to make or buy decisions have also started increasing. Make or buy decision is a fundamental issue to be addressed by any company. The competition is increasing globally; as a result the manufacturing companies are re-evaluating their existing processes, technologies, manufactured parts and services in order to focus on strategic activities.  

There are finite resources in the company which makes the company incapable of affording all the activities in house. In the PMBoK, make-or-buy  decision is an output of the plan procurement process which is then used as an input to the conduct procurement process. So the organisation must decide to make or buy the product or service which are cost effective. The decision can be made at the individual resource level, or for an entire deliverable or for the project itself. The last option is decided right at the conception stage of the project.  

The cost evaluation technique used for the make or buy decision should be based on both direct and indirect costs. Direct costs include goods, materials, equipment, facilities and employee salaries. Indirect costs (some of which tend to get missed in the evaluation) include training costs, management costs, administrative overheads, and on going maintenance costs. 

Even though cost evaluation is the fundamental issue, there are other considerations in make or buy decision which include: 

  • Capacity: Can the company take on a product or service of this scale? 
  • Skill level:  Do the persons involved in the project posses the  skills required or do they need any additional training based on the project? 
  • Trade secrets:  The company should maintain the secrets of a magic formula for a product or service but if this is not disclosed, then the product or service cannot be outsourced.  
  • Staff availability and existing workload:  If the staffs engaged in the project are already working on another priority project, then they cannot be available for this project.   
Posted Date: 9/27/2012 2:48:40 AM | Location : United States







Related Discussions:- Make-or-buy decisions, Assignment Help, Ask Question on Make-or-buy decisions, Get Answer, Expert's Help, Make-or-buy decisions Discussions

Write discussion on Make-or-buy decisions
Your posts are moderated
Related Questions
What is the meaning of Pareto inefficient outcomes Policy coordination is, therefore, designed to avoid Pareto inefficient outcomes. In absence of a supranational authority tha

State about the Median Voter Theorem Percentage of vote necessary for a proposal to be adopted, remember Median Voter Theorem, will affect the difficult of adopting a proposal,

The United States form of government is often described as a "Constitutional Democracy ". The existence and importance of a written Constitution is a major difference between the A

Hire-Purchase and Conditional Sale – Sales of Goods Conditional Sale is an agreement for the sale of goods like in which the purchase price or part about it is payable through

A is a Malaysian contractor in the oil and gas business. B is a large British oil exploration company. By a written Contract, B appointed A in January 2008 to maintain B's offshore


Q. Indicator based definition of phoenix activity? Many stakeholders emphasised the importance of educating the community about the signs or indicators of phoenix activity. A d

Rules for Loan creditors: Loan creditors and landlords are subject to special rules in certain circumstances: (a) if a person (usually a bank) lends money to the company to e

Problem I. Sandy has been working for Bean Canning Ltd for 9 years. Last Monday Sandy was called to the Manager's Office and verbally informed that her employment was termi

Forms of action: A minority of shareholders or an individual shareholder suing under one of the above exceptions may institute one of the following actions i) A personal ac