Make-or-Buy Decisions: Procurement Strategy for Project Success

PMBOK v8 Definition

Make-or-buy decisions are a critical component of procurement strategy, determining whether project work should be performed internally ("make") or acquired from external sources ("buy"). According to PMBOK v8, these decisions are directly connected to the procurement strategy, and for buy decisions, procurement tailoring involves selecting the appropriate contract type, such as fixed-price or time and materials (T&M) contracts, based on risk distribution and cost certainty. The decision process includes evaluating the risks involved with each make-or-buy option, considering factors like in-house capabilities, need for specialized expertise, and the desire to avoid expanding permanent employment obligations.

Why It Matters for the Exam

Make-or-buy decisions appear frequently in PMI exam questions because they bridge project procurement management with risk management, cost management, and overall project strategy. You will encounter these concepts in situational questions where you must determine whether to outsource or perform work internally, as well as in questions about selecting the appropriate contract type based on the decision outcome.

Key Points to Remember (for the exam)

• Primary Decision Factors: Organizations make a buy decision to outsource if they do not have the in-house infrastructure or technologies needed to internally complete the project
• Risk Evaluation: The decision process includes evaluating the risks involved with each make-or-buy decision
• Contract Type Selection: For buy decisions, procurement tailoring involves selecting the appropriate contract type (fixed-price or T&M) based on risk distribution and cost certainty
• Procurement Strategy Connection: Once make-or-buy analysis is complete and the decision is made to acquire from outside, a procurement strategy should be identified
• Strategy Objective: The procurement strategy determines the project delivery method, the type of legally binding agreement(s), and how the procurement will advance through procurement phases
• Financial Implications: Contract type selection may have multiple implications for the financial side of the project; financial processes must be tailored with the procurement strategy to minimize risk of cost overruns
• Common Confusion: Make-or-buy decisions are NOT about choosing between vendors; they are about deciding whether to perform work internally or outsource it

Typical PMI Exam Example

Your project requires specialized cybersecurity expertise that your organization does not possess internally. The team has no in-house infrastructure to develop this capability within the project timeline. The project manager should recommend a buy decision and proceed to procurement strategy development, selecting a contract type that balances risk distribution with the need for cost certainty.

PMI Exam Traps

• Trap: Confusing make-or-buy analysis with vendor selection

  • Reality: Make-or-buy analysis determines if to outsource; vendor selection determines who to outsource to

• Trap: Assuming "make" is always cheaper

  • Reality: The decision considers multiple factors including in-house capabilities, specialized expertise needs, and risk evaluation—not just cost

• Trap: Thinking contract type selection happens before make-or-buy analysis

  • Reality: Contract type selection occurs after the buy decision is made, as part of procurement tailoring

• Trap: Ignoring the procurement strategy connection

  • Reality: Make-or-buy decisions directly feed into the procurement strategy, which determines delivery method, agreement type, and procurement phases

Important PMI Connections

Quick Review Questions

1. After completing a make-or-buy analysis and deciding to acquire from outside the project, what three elements should the procurement strategy determine?

2. What are the primary factors that lead an organization to make a buy decision instead of performing work internally?

3. When selecting a contract type for a buy decision, what two factors should be considered according to PMBOK v8?

4. How do make-or-buy decisions connect to financial planning and the risk of cost overruns?

5. What is the difference between evaluating risks in make-or-buy decisions and evaluating risks in vendor selection?

PMBOK v8 Reference

Section 2 – Project Management Performance Domains (pages 65-66) Procurement strategy subsection of the Project Performance Domains