How do you monitor and review a make or buy decision over time?

2 How to calculate the total cost of ownership?

The total cost of ownership (TCO) is a comprehensive measure of all the costs associated with acquiring and using a product or service over its entire life cycle. It includes the initial purchase price, as well as the ongoing operating, maintenance, and disposal costs. To calculate the TCO of each option, you need to identify and estimate all the relevant cost elements, such as materials, labor, overhead, transportation, inventory, quality, warranty, taxes, and fees. Additionally, you must discount the future costs to their present value, using an appropriate discount rate, and sum up the present values of all the cost elements to get the TCO of each option. Finally, you can compare the TCOs of the make and buy options and choose the one that offers the lowest TCO and the highest value.

3 How to monitor and review your decision?

A make or buy decision is not a one-time event, but a dynamic and ongoing process that requires constant monitoring and review. You need to track and measure the actual performance and costs of your chosen option against the expected outcomes and budget, evaluate the satisfaction and feedback of your internal and external customers and stakeholders, and identify and assess any changes or risks in the internal and external environment that may affect your decision. This could include demand fluctuations, technological innovations, competitive pressures, or supplier issues. If necessary, you should adjust your decision and strategy to optimize your results and maintain your competitive advantage.

4 What are the benefits and challenges of making or buying?

Making or buying can have different advantages and disadvantages for your business, depending on your specific situation and objectives. When making, you may have greater control and customization over the quality and specifications of the product or service, as well as higher protection of your intellectual property and trade secrets. Additionally, you may have more flexibility and responsiveness to changing customer needs and market conditions, as well as lower dependency and vulnerability to external suppliers. On the other hand, buying may result in lower fixed and variable costs and capital investment, as well as higher efficiency and productivity by focusing on your core competencies and outsourcing non-core activities. However, making may also come with higher complexity and risk of managing the production process and resources, as well as higher opportunity cost of using your resources for other purposes. Buying may also come with lower control and visibility over the quality and delivery of the product or service, as well as higher transaction and coordination costs and potential conflicts with external suppliers.