BIS4408 – Information Systems Quality Management

Build, Buy, or Subcontract - The Management Dilemma

The decision to build or buy is often compounded by the options open to the software
manager; off-the-shelf, outsourced development, software component acquisition, in-house
build, or a mixture. What factors influence the decision? Time constraints, criticality of the
software, and end-cost, to name a few.

Decision tree analysis is just one of a range of techniques that can help the ordinary software
manager to reach a decision. In the following scenarios decision trees allow managers to
select the most cost-effective option.

The first scenario is:

You are the IT manager of a company that needs a software package to process customer
records. A review of the options has come up with;

 build it yourselves,

 buy it in,

If the software is built from scratch, it is predicted to be in the order of 5,000 loc (5kloc),
with in-house software development currently running at £10 per loc. An off-the-shelf
package has been identified which will satisfactorily meet all the requirements, which (from
the technical spec.) is also in the order of 5,000 loc and costs £25,000.
Questions;

1) Your in-house software team want to develop the package, will you let them?

2) After further study, the off-the-shelf package will need at least 1,500 loc modified to meet
the requirements, assuming the cost to modify is additional to the package cost, do you
buy or develop?

3) A third party now bids to develop the package, they have a good track record and bid
£35,000, which option do you choose now?

The second scenario (based on calculating expected costs) is:

As the IT manager you have four options for your new software package; build new, reuse
and modify, buy off-the-shelf and modify, outsource.

1) If you build, there is a 70% probability of complex/difficult development, at a cost of

£450,000, and only a 30% probability of straightforward development, at a cost of
£380,000.

2) If you reuse, there is a 40% probability of a minor number of modifications, at a cost

of £275,000. If there are a major number of modifications (60% probability), there is
an 80% probability that the modifications will be complex, at a likely cost of

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 £400,000, and a 20% probability that the modifications will be simple, at a likely cost
of £300,000.

3) If you buy off-the-shelf, in addition to the initial cost of £240,000, there is 50%
probability of minor changes, taking the cost to £320,000, and a 50% probability of
major changes, taking the cost to £400,000.

4) If you outsource, you have been quoted a fixed price of £350,000 from a reliable
company.

Which option do you choose?

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