Make or Buy Analysis on the PMP Exam: Decision Framework Guide

Make or Buy Analysis: The Procurement Decision That Shapes Your Project

Make-or-buy analysis is a technique used during project planning to determine whether a particular product, service, or result should be produced internally by the project team or purchased from an external source. The PMP exam includes this topic within Procurement Management, and questions test both the analytical framework and the strategic considerations that drive the decision.

The Core Decision

At its simplest, the make-or-buy decision compares two options:

Make: The organization produces the product or performs the work using its own resources, capabilities, and expertise.
Buy: The organization procures the product or work from an external vendor, contractor, or supplier.

The decision is not purely financial. While cost is a major factor, strategic, risk, and capability considerations all play a role — and the PMP exam tests all of them.

Financial Analysis

The quantitative component of make-or-buy analysis compares the total cost of each option. This includes both direct and indirect costs:

Make Costs

Direct costs: labor, materials, equipment.
Indirect costs: management overhead, facility usage, training.
Learning curve costs: time and resources to develop competence if the organization has not done this type of work before.
Ongoing maintenance and support costs.

Buy Costs

Purchase price or contract value.
Procurement management costs: solicitation, evaluation, contract administration.
Integration costs: adapting the purchased item to work with other project components.
Vendor management and quality oversight costs.
Risk costs: vendor dependency, supply chain exposure.

Strategic Considerations

Beyond cost, the PMP exam expects you to consider strategic factors:

Reasons to Make

The work involves core competencies the organization wants to develop or protect.
No suitable vendor exists or vendor options are limited.
The organization has excess capacity that would otherwise go unused.
The work involves proprietary technology or intellectual property that must remain in-house.
Greater control over quality and schedule is needed.

Reasons to Buy

The organization lacks the expertise, resources, or capacity to produce the item.
The item is commercially available and buying is significantly cheaper.
The work is not a core competency and distracts from the organization's primary focus.
The vendor has specialized expertise that would take too long to develop internally.
Risk transfer to the vendor is desirable (fixed-price contracts, warranties).

Risk Considerations

Risk analysis is an integral part of make-or-buy decisions. Each option carries different risks:

Make risks: Resource constraints, learning curve delays, technology failure, opportunity cost.
Buy risks: Vendor dependency, quality issues, communication overhead, contract disputes, supply chain disruption.

Make-or-Buy Analysis in the PMBOK Context

Make-or-buy analysis is performed during the Plan Procurement Management process. Its output — the make-or-buy decisions — directly informs the procurement management plan and the procurement strategy. Items marked "buy" enter the procurement process (solicitation, vendor selection, contracting). Items marked "make" remain in the project plan for internal execution.

PMP Exam Question Patterns

Expect questions like:

A scenario comparing internal production cost versus vendor pricing — with the twist that the cheaper option has higher risk or strategic drawbacks.
A question asking what process make-or-buy analysis belongs to (Plan Procurement Management).
A scenario where the organization lacks capability — the answer is often "buy" regardless of cost.
Questions about lease vs. buy calculations, where you compare total costs over the usage period.

Lease vs. Buy: A Related Calculation

The PMP exam occasionally presents lease-versus-buy calculations. Compare the total cost of leasing over the expected usage period against the purchase price plus operating costs. If the lease total exceeds the purchase total, buying is more economical — and vice versa. Watch for the breakeven point where the two options cost the same.

Practice make-or-buy analysis questions with detailed solutions in our PMP exam prep suite.