Make-or-Buy Decision: What Is the PMP Scenario Really Asking?
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Make-or-Buy Decision: What Is the PMP Scenario Really Asking?
A project needs a product, service, or capability.
Should the organization:
- perform the work internally,
- purchase it from an external seller,
- or use a hybrid approach?
At first glance, this can look like a cost question.
It is broader than that.
A make-or-buy decision is really about:
- capability,
- capacity and timing,
- total economic impact,
- strategic importance,
- risk.
A useful Project Reasoning Lab principle is:
Make-or-buy asks where the work should live — inside the organization, outside it, or across both.
The cheapest option is not automatically the best one.
1. Start With Five Questions
Before choosing make, buy, or hybrid, ask:
1. Do we have the capability?
Do we have the required:
- skills,
- knowledge,
- tools,
- experience,
- technical capability?
2. Do we have the capacity — and can we meet the timing?
Can internal resources take on the work without damaging other priorities?
Can they deliver when the project needs it?
3. What is the total economic impact?
Consider more than the visible price.
Include:
- direct cost,
- indirect cost,
- training,
- equipment,
- procurement administration,
- vendor management,
- maintenance,
- opportunity cost.
4. How strategically important is the capability?
Should knowledge, control, or intellectual property remain internal?
5. Which risk profile is more manageable?
Making and buying create different risks.
These five questions are the backbone of the decision.
2. Capability: Can the Organization Do the Work?
Consider:
A project needs a specialized cybersecurity assessment.
If the organization already has:
- qualified professionals,
- appropriate tools,
- relevant experience,
internal delivery may be realistic.
Now suppose the organization has no internal team with the required expertise.
External procurement becomes more attractive.
The key question is:
Does the organization have the capability required to perform the work successfully?
3. Capacity and Timing: Can We Do It Now?
Capability and capacity are not the same thing.
Consider:
The internal engineering team has the necessary expertise but is already fully committed to a regulatory deadline.
The organization can perform the work.
But perhaps not now.
Or consider:
Building the internal capability will take six months, while a qualified seller can begin next week.
Timing may make buying more practical.
Now reverse it:
Procurement will take months, while the internal team can start immediately.
Making may fit better.
The principle is:
Can do does not automatically mean can do now.
And timing can be decisive when one option can meet the required date and the other cannot.
4. Total Economic Impact Includes Opportunity Cost
Suppose:
A seller quotes $100,000, while the internal estimate is $80,000.
Does that automatically mean the organization should make?
Not necessarily.
The internal option may also involve:
- training,
- equipment,
- supervision,
- maintenance,
- support,
- lost capacity elsewhere.
The external option may involve:
- seller price,
- procurement administration,
- contract management,
- transition effort,
- vendor dependency.
And there is another question:
What must the organization give up to choose this option?
If internal specialists are diverted from a higher-value initiative, the apparently cheaper option may carry a significant opportunity cost.
So:
Compare total relevant economic impact, not just the visible price.
5. Strategic Importance Can Favor Internal Delivery
Some capabilities may be important enough that the organization prefers to keep them internal.
Examples may include:
- proprietary technology,
- sensitive intellectual property,
- core operating knowledge,
- critical security capability,
- strategic decision-making.
External procurement may create concerns about:
- knowledge loss,
- dependency,
- confidentiality,
- reduced direct control.
A useful principle is:
Some capabilities are worth retaining because losing the knowledge may cost more than outsourcing saves.
Strategic importance can also support a hybrid approach.
For example:
The organization retains architecture, product ownership, and sensitive knowledge internally while outsourcing specialist execution.
This preserves strategic control while adding external capability.
6. External Expertise May Be More Efficient
Now consider:
The project needs specialized laboratory testing that the organization requires only occasionally.
Developing internal capability may require:
- expensive equipment,
- specialist staff,
- training,
- maintenance.
If qualified external providers already exist, buying may be more efficient.
External procurement may fit when:
- expertise is rare,
- demand is temporary,
- the work is non-core,
- internal capability would be expensive to maintain.
7. Make-or-Buy Does Not Have to Be Binary
The organization does not always need to choose:
100% make
or
100% buy
A hybrid model may place different parts of the work where they fit best.
For example:
Internal team: architecture, governance, sensitive data
External seller: specialized development, testing, temporary capacity
This can combine:
- retained strategic control,
- internal knowledge,
- specialist expertise,
- additional capacity,
- flexibility.
Sometimes the best sourcing decision is not choosing one side.
It is deciding which work belongs where.
8. Risk Changes Depending on the Choice
Making internally creates one risk profile.
Buying externally creates another.
Internal delivery may create:
- resource risk,
- capacity pressure,
- skills-gap risk,
- internal schedule risk,
- opportunity cost.
External procurement may create:
- seller-performance risk,
- contract risk,
- vendor dependency,
- external schedule risk,
- reduced direct control.
This gives us another strong Project Reasoning Lab principle:
Outsourcing does not remove risk. It changes the type and location of risk.
So ask:
Which risks can the organization manage more effectively?
9. Scenario: Strong Internal Capability and Capacity
Consider:
The organization has an experienced development team with available capacity, and the work is closely connected to a core product.
Making internally may fit because:
- capability exists,
- capacity exists,
- knowledge remains internal,
- integration may be easier.
The reasoning is not:
“Internal is always better.”
It is:
The organization is well positioned to perform the work itself.
10. Scenario: Capability Exists, but Capacity Does Not
Consider:
Internal specialists can perform the work, but they are fully committed to another high-priority initiative.
Buying may fit because external sourcing can protect higher-priority internal work.
The key question is:
Can we do this without damaging something more important?
11. Scenario: Rare Specialist Expertise
Consider:
The project requires a highly specialized analysis that the organization does not normally perform.
Buying may fit if:
- the expertise is temporary,
- the capability is non-core,
- qualified sellers already exist.
12. Scenario: Strategic Capability or Sensitive IP
Now consider:
The project involves proprietary algorithms that provide a major competitive advantage.
Making internally — or using a hybrid approach — may better protect:
- intellectual property,
- knowledge retention,
- strategic independence.
13. Who Actually Makes the Decision?
The project manager may perform or contribute to the make-or-buy analysis.
But the PM may not have unilateral authority to decide sourcing.
The decision may involve:
- procurement,
- sponsor,
- functional management,
- governance,
- senior management.
So another useful question is:
Who has authority to approve the sourcing decision?
The PM may analyze and recommend.
The final decision may belong elsewhere.
14. Quick Comparison
| Situation | Likely Direction |
|---|---|
| Strong internal expertise and available capacity | Make may fit |
| Internal resources are constrained | Buy may fit |
| Rare specialist skill is required | Buy may fit |
| Strategic or IP-sensitive capability | Make or hybrid may fit |
| External seller can meet the date much faster | Buy may fit |
| Procurement lead time is excessive | Make may fit |
| Different components suit different sources | Hybrid may fit |
15. Three Common Traps
Trap 1: Cheapest Option Automatically Wins
No.
Cost, timing, capability, strategy, and risk all matter.
Trap 2: If We Can Do It, We Should Make It
Not necessarily.
Capability without available capacity may still make internal delivery impractical.
Trap 3: Outsourcing Transfers the Risk Away
No.
It replaces some internal risks with seller, contract, and dependency risks.
Final Takeaway
When a PMP scenario asks whether the organization should make or buy, ask:
Can we do it?
Can we do it now?
What does it really cost?
Should we retain the capability strategically?
Which risk profile is more manageable?
And remember that the answer may be:
make
buy
or
hybrid
Choose where the work should live based on capability, capacity, economics, strategy, timing, and risk — not price alone.
That is what the PMP scenario is really asking.
