what are the various analysis carried out yo take make or buy decision ?

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udayanga | College Teacher | (Level 1) Salutatorian

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Make or buying decision is a critical decision in any enterprise. Generally It may be a strategic decision should be made by managers. A businessman may decide to purchase product rather than producing them in house. If it is cheaper to buy than make or if it does not have sufficient production capacity to produce it in house. Thus, to analyze this decision, following analysis can be used.

 

  1.  Outsourcing Decision Matrix

 

The Outsourcing Decision Matrix helps managers to consider two important factors in outsourcing a task:

a)      How strategically importance is the task to the business?

b)      What are the task’s impacts on the organization's operational performance?

Following strategic decisions can be take under this matrix

1)      Strategic alliances

2)      Retain

3)      out source

4)      Eliminate

 2.Marginal costing

Marginal costing can be applied to take decision on make or buy by calculating total cost of unit production which includes direct cost and variable cost components under production.If,business organization must expend more than the cost of one unit that can be purchased from outside. It is better to purchase that item from outside (out sourcing)

 

03.Linear Progamme

Linear programming is a mathematical technique that determines the best way to use available resources. Managers use the process to help make decisions about the most efficient use of limited resources. This shows the best possible point that can be the best profitable option to produce rather than buying products. This can be used to take decision on buying or make.

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