Question

Under what conditions would it be advisable to use outsourcing? When is it good to buy versus build? What methods would you use to determine a buy, build, or outsource an activity?

Answer 1

Outsourcing would be advised in the following conditions:

1. Reduced functioning and operational Cost and labor costs are some of the main reasons leading to the companies choosing to outsource and that leads to substantial savings.
2. Outsourcing helps the companies to have an access to and tap in to and leverage a knowledge base that is not restricted to any area but covers the entire world and thereby enabling access to world class capabilities
3. When organizations opt for outsourcing, then it releases the resources which could be put in to effective use for other purposes of the organisationis and it also aids in the mitigating of risk. Outsourcing, in many cases is preferred because it becomes essential in order to fulfill the requirement of saving cost and to provide the cushioning for the capital fund and thereby to provide to save costs and provide a buffer capital fund to companies that could be leveraged in a manner that results in the company making substantial profits.

It is good to buy as compared to build due to the following reasons:

1. Lack of expertise within the organization to be able to deliver a system that promotes scalable growth by leveraging the expertise that is prevalent.
2. Organisations stand to benefit as a result of the latest innovations and technologies that have been tested and adopted by the external enterprise or organizations.
3. To be able to face competition and succeed the organizations must on a regular basis must take care of upgrades and maintenance and when we go in for the buy option this is taken care of by the vendors and the organization can successfully focus on their relevant business issues.
4. Organisations if they have a problem of Limited production facilities or insufficient capacity then they will go ahead with the buying option instead of building it.

The various methods used to determine buy , build , outsource option are as follows:

1. Incremental cost method
2. Relevant cost method