Build vs Buy Calculator

How to Use the Calculator – Step-by-Step

1. Enter Development Cost:
   Input the total amount needed to develop the solution in-house.
2. Enter Maintenance Costs:
   Include both ongoing maintenance and potential opportunity costs for building.
3. Enter Purchase Costs:
   Input the initial purchase and integration costs for buying a solution.
4. Enter Annual Savings:
   Include any savings gained from building or buying.
5. Click ‘Calculate’:
   View the total cost comparison for building vs. buying and the payback period for building.

Understanding Build vs Buy Analysis

This analysis compares the total cost of ownership for both options: building in-house versus buying a ready-made solution. By understanding the total costs, you can make data-driven decisions on the most cost-effective approach for your business.

Industry Benchmarks for Build vs Buy Decisions

Practical Example

Scenario:

• Development Cost: ₹500,000
• Maintenance Cost (Annually): ₹50,000
• Opportunity Cost: ₹100,000
• Initial Purchase Cost: ₹1,200,000
• Integration Cost: ₹50,000
• Subscription/Maintenance Cost (Annually): ₹200,000
• Annual Cost Savings: ₹100,000

Calculation:

• Total Cost of Building = ₹500,000 + ₹50,000 + ₹100,000 = ₹650,000
• Total Cost of Buying = ₹1,200,000 + ₹50,000 + ₹200,000 – ₹100,000 = ₹1,350,000
• Payback Period for Building (Years) = ₹650,000 / ₹100,000 = 6.5 years

Interpretation:

Building the solution will cost ₹650,000 upfront with a payback period of 6.5 years. On the other hand, purchasing the solution will cost ₹1,350,000 upfront, with the savings from the purchase potentially leading to faster ROI.

Tips to Optimize Decision Making

• Evaluate Hidden Costs:
  Ensure all potential costs (e.g., training, system upgrades) are included when comparing options.
• Consider Scalability:
  Understand how your solution will scale in the long term and how this impacts the total cost.
• Focus on Long-Term Savings:
  The payback period helps you understand when you’ll see a return on your investment, especially when building in-house.
• Leverage Industry Expertise:
  If you lack in-house expertise, the cost of developing and maintaining a solution might outweigh the benefits.
  

Glossary: Key terms explained