Build vs. Buy: A Financial Decision Framework

When businesses need a new system, product, or capability, they must decide whether to develop it internally or purchase it from a vendor. Here’s how to analyze this decision from a financial perspective:

Making the Right Investment Decision

To make an informed choice, businesses should:

1. Conduct a detailed cost-benefit analysis using NPV, ROI, and payback period.
2. Assess long-term strategic alignment with business goals.
3. Consider operational dependencies such as internal expertise and risk tolerance.
4. Run sensitivity analyses to evaluate different scenarios and potential risks.

The build vs. buy decision is not just a cost consideration. It’s a strategic choice that affects business agility, competitiveness, and financial sustainability. By analyzing financial metrics and aligning with business goals, companies can make decisions that drive efficiency and long-term success.