Assumptions and method
Include comparable quality, transition, oversight and exit costs before deciding. A cost advantage is not a sourcing strategy.
Test a scenario
Use the result in a decision
Use the same scope and test commercial assumptions.
Include comparable quality, transition, oversight and exit costs before deciding. A cost advantage is not a sourcing strategy.
Set a baseline and change one assumption to compare outcomes.
A worked example
Follow the fixed teaching example
- Make cost = 15,000 + 30 × 800 = 39,000; buy cost = 55 × 800 = 44,000.
- The modelled cost advantage of making is 5,000. The crossover is 15,000/(55 − 30) = 600 units.
These illustrative inputs describe a project scenario, not a published benchmark. All monetary inputs use the same currency and price basis.
- Fixed cost of making
- 15000
- Variable make cost per unit
- 30
- Buy price per unit
- 55
- Required units
- 800
- Make cost
- 39,000
- Buy cost
- 44,000
- Cost advantage of making
- 5,000
- Crossover quantity
- 600 units
Interpret the output only within the assumptions above. Changing the inputs changes the result; it does not validate the inputs.
Source & credit
Standard estimating practice; the cited guide documents use rather than claiming invention.
GAO: Cost Estimating and Assessment Guide
This is independently written code and explanation of the underlying method. The linked publication, its diagrams and its trademarks remain its owner’s material; no permission to reuse them is implied.