Question

1. Project managers must frequently decide whether to obtain needed products and services from internal sources or from external sources. This decision is often referred to as the make-or-buy decision. Briefly identify and explain at least three reasons that support the decision to “make” the products and at least three reasons that support the decision to “buy” the products.

2. Identify two actions a project manager can take to avoid terminating a project early. If these actions aren’t effective, how should the project manager approach an early termination?

Answer 1

Project Managers – Make or Buy Decision

Some of the factors that influence a project manager to make or buy a product are listed below.

Make

• Budget Constraints

The cost of procuring a product or resource is usually higher than the cost of making it in-house. If the project is on a cost-cutting or cost-saving mode, it makes sense to utilize the internal resources and make the product rather than buying it from outside.

• High Internal Capacity

If a project manager has a lot of resources at his disposal, it would be easy for him or her to utilize these resources to build the product instead of spending extra money on getting them from outside.

• Information Security

In some projects, the internal information is confidential and cannot be shared with other companies as per the contract between the customer and the company. In such cases, buying a product from outside, if it requires sharing client confidential information, results in violation of contract terms which could adversely affect the firm’s reputation. In such cases, project managers generally go for a make decision.

Buy

• Reduce Time

When the product required has to be delivered sooner, the project manager will not have time to train internal resources and build the product. In such cases, he will go for a make decision.

• Not a Core Competency

If the product in consideration is not part of the core competency of a firm, it is important to outsource or procure that product instead of wasting time and resources in making it. For instance, a ghee manufacturer will only focus on making the key while procuring jars, containers and other packaging materials from outside.

• Economics of scale

In some cases, the product required may be only small parts in small quantities. In such cases, allocating resources to train and build the product is both time consuming and expensive. The project manager will then decide to buy the product.

Actions to avoid termination early

1. A project manager can avoid early termination of a project by proactive monitoring of key metrics such as cost, resource, and so on to ensure early detection of signals that suggest a project could fail.
2. The Project manager should have a risk mitigation strategy and team in place to ensure smooth running of the project even during unforeseen circumstances.