Sourcing Strategy Plan: Insourcing vs. Outsourcing Decisions

PMBOK v8 Definition

The sourcing strategy plan is a component of the project management plan that describes which elements of the project will be insourced, outsourced, or both. The sourcing strategy should contain the rationale for a given approach, based on the desired impact to project value, schedule, risk, finances, or other considerations. A sourcing strategy can be formal or informal, highly detailed or broadly framed, and is based upon the needs of each project.

This concept is addressed within the Plan Sourcing Strategy process, which is the process of deciding whether to use internal or external resources for different parts of a project, considering factors such as organizational culture, specialized skills, resource capacity, risk, and the overall value proposition.

Why It Matters for the Exam

The sourcing strategy plan frequently appears on the PMI exam in questions testing your understanding of procurement management and the distinction between insourcing vs. outsourcing decisions. You will encounter this concept in situational questions where you must determine whether a project should use internal capabilities or external vendors, and in questions about which project management plan component documents these decisions.

Key Points to Remember (for the Exam)

• Definition: The sourcing strategy plan describes which project elements are insourced, outsourced, or both
• Rationale Required: The strategy must contain the rationale based on desired impact to project value, schedule, risk, finances, or other considerations
• Regular Review: The sourcing strategy should be revisited regularly to ensure it reflects the current capabilities of the team and the needs of the project
• Components: Includes insourcing or outsourcing decisions AND source selection criteria
• Format Flexibility: Can be formal or informal, highly detailed or broadly framed
• Scope Limitation: May or may not include the details of how outsourced procurement should be performed
• Key Differentiator: The Plan Sourcing Strategy process differs from Plan Resource Management as it involves outsourcing of project work and deliverables

Typical PMI Exam Example

A project manager is developing the project management plan for a software development project. The organization has strong internal development capabilities but lacks specialized security testing expertise. The project manager must document which project elements will be completed internally and which will be procured externally. Which component of the project management plan should the project manager create?

Answer: The sourcing strategy plan, which describes which elements will be insourced, outsourced, or both, and includes the rationale based on schedule, risk, and value considerations.

PMI Exam Traps

• Trap: Confusing the sourcing strategy plan with the procurement management plan Reality: The sourcing strategy plan is a component of the project management plan that may or may not include details of how outsourced procurement should be performed

• Trap: Thinking sourcing strategy is a one-time decision made at project initiation Reality: The strategy should be revisited regularly to reflect current team capabilities and project needs

• Trap: Believing sourcing decisions are based only on cost Reality: Decisions consider multiple factors: project value, schedule, risk, finances, organizational culture, specialized skills, and resource capacity

• Trap: Confusing Plan Sourcing Strategy with Plan Resource Management Reality: Plan Resource Management focuses on internal resources; Plan Sourcing Strategy involves outsourcing work and deliverables to external organizations

Important PMI Connections

Quick Review Questions

1. What are the two mandatory components that the sourcing strategy plan may include?

2. A project requires specialized skills that do not exist within the organization. Should the sourcing strategy plan document this as an insourcing or outsourcing decision?

3. How often should the sourcing strategy be reviewed according to PMBOK v8?

4. What factors should be considered when determining the rationale for a sourcing approach?

5. How does the Plan Sourcing Strategy process differ from the Plan Resource Management process?

PMBOK v8 Reference

Section 2.1.6 – Plan Sourcing Strategy
Section 2.1.6.4 – Manage Project Execution
Appendix X4 – Procurement (for additional detail)