What is Make-or-Buy Analysis?
Make-or-buy analysis is the structured decision between producing something in-house and procuring it: compare full costs (including hidden ones — management attention, integration, opportunity cost), plus capability, capacity, IP sensitivity, and strategic value.
The classic mistakes run in both directions: "buying is expensive" while ignoring what internal hours really cost, and "outsource everything" while handing a vendor your core competitive advantage. Cost is the start of the analysis, never the whole of it.
Worked example
A logistics firm needs route optimization. Building: ~$600K and a year, but the algorithm is their differentiator. Licensing: $150K/year, live in a month, and every competitor can buy the same thing. They license mapping (commodity) and build optimization (crown jewels) — make-or-buy done properly, per component.