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Buy v. Build

"It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy."

The issue of deciding when to buy goods or services rather than handle work in-house is an old one. Adam Smith addressed the problem 250 years ago in The Wealth of Nations, when he wrote that one should never attempt to make what will cost “more to make than to buy.” That common-sense approach has been a rule of thumb ever since, but making that call is an issue with which today’s managers frequently struggle. Here are three of the

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most important reasons I can think of that buying can make more sense than building:

Controlling delivery schedule and costs

As counterintuitive as it may seem, in-house teams have fewer incentives than outside vendors to deliver projects on schedule and on budget. A US-based vendor has a legal obligation to deliver on budget and they often can have concrete penalties levied against them for missing deadlines. (It’s also worth noting that vendors based in India basically cannot be sued for non-performance since legal action would have to take place in India where it takes upwards of seven years for a court case to be heard.) Potential budget-breakers for projects handled in-house include: “resource creep,” where the project takes more than the budgeted number or type (i.e., support staff vs. software developers) of resources; “schedule creep,” where short-term priorities continually derail large projects taken on by in-house staff, pushing delivery dates off indefinitely; and, lack of accountability, especially when a committee comprised of interdepartmental staff has no single person responsible for the project’s delivery.

Keeping in-house resources focused

Tying up in-house human resources on certain projects can have adverse effects on a whole organization. It can divert the attention of senior staff members from their assigned job responsibilities, violating the core principle of focusing specialists on their “highest and best use” within the organization. This can decrease the morale of highly trained personnel, sometimes to the point of causing them to seek employment elsewhere. Worse, if a project turns out to be too complex for the in-house resources assigned to it, unwanted consequences can include setting talented, valued employees up for failure.

Ensuring the best possible deliverable

Vendors are typically specialists. They handle multiple projects of a similar nature over time. In-house employees, even those who do very specialized work, can rarely accumulate as extensive a body of experience as that of a qualified vendor team. Reasonably experienced vendors have a thorough knowledge of best practices in their areas and can anticipate and head off the many types of issues that may arise and derail a project, guaranteeing fewer mid-project panic attacks and often ensuring a higher level of quality and/or a more quickly delivered project than in-house staff can deliver.

posted by Shyamali Ghosh on September 24, 2012

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