Quantitative Risk Analysis: Individual Project Build vs. Buy Decision As the manager of a new website...
Quantitative Risk Analysis: Individual Project Build vs. Buy Decision
As the manager of a new website project for your company, you need to decide whether to create a new web application in-house or send the project out to a developer. The developer has quoted a project cost of $175,000. Based on previous work with this developer, you are 85 percent certain they will finish the work on time. Your in-house development team has quoted a project cost of $165,000. Based on previous work with the in-house team, you are 75 percent certain they will complete the work on time.
Create a decision tree illustrating the cost and probability of each option and then identify the best decision for the project. A labeled diagram must be created in Excel.
Homework Answers
The best decision for the project can be derived from the following two parameters:
1) Work done surity % = As the differece between the surity of work done by developer and by in house development is not very high (10%). So we can go with in house development. With in house development we can also keep on eye of development on daily basis.
2) Cost difference = With in house development, we are saving exactly $10,000, so its better to go with inhouse development.
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Quantitative Risk Analysis: Individual Project Build vs. Buy
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