Make-or-buy decision

In short: In make-or-buy, a company decides whether to provide a service itself (in-house production, in-house operation) or obtain it externally (outsourcing).

In more detail: You compare costs and other criteria: quality, know-how, flexibility, dependence, data protection, time. In IT this concerns, for example, running your own servers (on-premises) versus cloud services.

In Depth

• Cost comparison: In-house: hardware, electricity, staff, maintenance. External: fees, contract, switching costs. The critical quantity above which in-house operation pays off follows from equating the cost functions.
• Advantages of buying: faster availability, less capital tied up, specialist knowledge.
• Disadvantages of buying: dependence (vendor lock-in), data protection and loss of control, ongoing costs.
• Example: own mail server or Microsoft 365? Own backup or cloud backup (3-2-1 rule)?
• Aid: weighted scoring analysis for non-monetary criteria.

See also: Payback calculation and TCO, Data processing agreement