Project Procurement Make or Buy Analysis

A key element of the Project Procurement Management process is planning and documenting project purchasing decisions. The project procurement process includes identifying which project components can (or must be) externally procured and those which can (or must be) procured internally. Such decisions require well thought out make or buy analysis. Some projects and organizations will require only a financial make or buy analysis, while others may require inclusion of other factors such as, for example, risk, time to market, quality or market perception.

The following project procurement make or buy analysis spreadsheet considers two straightforward options: procuring from a 3rd party supplier and procuring internally. Keep in mind that many projects will face additional procurement options and considerations. The attached make or buy procurement analysis example includes a basic analysis using NPV and IRR, as well as a graphical representation of payback over time.


Link to the project procurement make or buy analysis example (in Excel format)

Month 1

Month 2

Month 3

Month 4

5 Year utilizing 3rd party provider

Revenue Increase (recurring monthly)

$6,000

$4,000

$4,000

$4,000

Total Revenue

$6,000

$10,000

$14,000

$18,000

Operating Expense

$9,500

$9,500

$9,500

$9,500

EBIDA

($3,500)

$500

$4,500

$8,500

Depreciation

$6,453

$6,453

$6,453

$6,453

Interest

$7,148

$7,148

$7,148

$7,148

Net Income

($17,100)

($13,100)

($9,100)

($5,100)

Cumulative Contribution

($17,100)

($30,201)

($39,301)

($44,402)

Capital Expenditures

Facilities

$705,812

Electronics

$151,900

Total Capital Expenditure

$857,712

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