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
QUESTION 1 The Bank of Mauritius has got various objects. It has therefore got various functions and powers in order to achieve the attainment of its objects. Discuss QUEST

Legal Environment of Business Inventions "R Us (IRU) advertises invention development services and has aggressively advertised its services on-line, in magazines, and on radio

1. Sometimes laws are created that are done for ethical reasons. For instance, it is wrong to pollute, so Congress passed the Environmental Protection Act, which punished those tha

Several rules for Fraudulent trading: Various rules have been established to determine what is fraudulent trading: (a) Only persons who take the decision to carry on the co

Resident Magistrate's Court Establishment Further Resident Magistrate's Court is constituted through S.3 (1) of the Magistrate's Courts Act that is provides that 'ther

Evolution of Contracting  Contracts have evolved over centuries. It is a lawful binding relation between two or more parties. The contractual relationships can occur - from a s

Question: Consider the following formulation of Kant's Categorical Imperative: ‘Act only to that maxim by which you can at the same time will that it should become a universal

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

Revival of a Dissolved Company: Liquidation leads on to dissolution of the company.  The court may, however, within the ensuing two years order that dissolution be rescinded a

There are three main categories of international humanitarian laws: 1) The Hague conventions 2) The Geneva conventions 3) The additional protocols