Certified Professional Public Buyer (CPPB) Practice Test

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What does a make or buy cost analysis determine?

The quality of the product to be acquired
The preferred procurement method
The future market trends
The vendors' reliability

The correct answer is: The preferred procurement method

A make or buy cost analysis evaluates whether it is more cost-effective for an organization to produce a good or service internally ("make") or to purchase it from an external supplier ("buy"). This analysis typically considers various costs associated with both options, including production costs, labor, overhead, and procurement costs. By conducting this analysis, the organization can determine the preferred procurement method based on which option provides the best value, aligns with strategic objectives, meets time constraints, and capitalizes on internal capabilities or resources. It is instrumental in guiding decision-makers towards the most economically viable option for acquiring necessary goods or services, ultimately impacting budget allocation and operational efficiency. While aspects like quality, vendor reliability, or future market trends may influence the decision, the primary focus of a make or buy cost analysis is to establish the preferred procurement method based on a thorough comparison of costs associated with making versus buying.