Question

Explain how make vs buy concepts could be applied to sourcing internally vs outsource recommendations for human resource management training

Answer 1

A make vs. buy compares the relevant cost of make with cost of externally buying to see the favourable option to the firm. The relevant cost includes the variable cost and costs which are relevant in decision making like opportunity cost. The external price is the price offered by the external supplier. The lower of the cost is selected in make vs. buy decision making.

The same concept can be applied to human resource training which can provided internally vs. the outsourcing to specialised firms.

The relevant cost on internally training includes cost like cost of professional hours paid to employees plus any other variable cost incurred in training vs. the total cost paid to the external training agency. If the internal training cost is lower the firm should go ahead with the option because it is beneficial to the firm. The cost of external training includes the quotation given by the vendor for providing training to the staff. Fixed cost is same in both alternatives and not relevant for decision making

In addition to above quantitative factors the qualitative factors should be considered similar to the make vs. buy decision making. Qualitative factors include impact on the employee’s motivation and morale, impact on firm’s brand and reputation, quality of training, vendor reliability, etc