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Definition: This is a general management technique and a part of the initial scope definition process that can be used to determine whether a particular product can be produced cost effectively by the performing organization. Analysis should include both indirect as well as direct costs. For example, the “buy” side of the analysis should include both the actual out-of-pocket cost to purchase the product as well as the indirect costs of managing the purchasing process.
A make-or-buy analysis must also reflect the perspective of the performing organization, as well as the immediate needs of the project. For example, purchasing a capital item (anything from a construction crane to a personal computer) rather than renting or leasing it may or may not be cost effective. However, if the performing organization has an ongoing need for the item, the portion of the purchase cost allocated to the project may be less than the cost of the rental.

Acceptance Level:  Generally accepted

Alternative or Related Terms: Procurement planning

Application Areas/Intended Uses: A make-or-buy analysis is a tool or technique in procurement planning.

Chief Advantages: This tool assists project managers in deciding whether a given product is better produced by the organization or purchased from outside sources.