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At one level, as the name suggests, this is a simple decision about whether to make something in-house or buy it from an external supplier. This also suggests that it only relates to physical products but the principles are equally applicable to services, i.e., should they be provided by in-house resources or external contractors.
In reality there are numerous inter-related factors that affect the decision. An obvious consideration is cost but other factors include the:
- risk associated with performing the work internally as opposed to sourcing it externally;
- continued availability of the required resources or the capacity of the supplier (and potential for a contractual arrangement to secure this);
- security of information that would have to be supplied to external suppliers;
- opportunity of developing a new internal capability;
- opportunity of learning new skills from external resources.
It would be incorrect to weigh each factor separately as they collectively build a picture of the optimum approach.
The results will be summarised and included in the business case for a project or programme. At programme level there may be opportunity to combine the needs of multiple projects in the decision; at portfolio level the needs of multiple projects and programmes may be consolidated.