If you wanted to purchase one floppy disk, it would be easy to determine the cost of that one disk. However, if you need to purchase two clustered servers, with 64GB of RAM, 200GB of hard disk space, two NICs each, and loaded with eight processors, the calculation would be a little tougher. You could leave it all up to the manufacturer or your favorite salesperson, but would you get your dollars’ worth?

The decision to make or buy a product is a fundamental aspect of management. In some conditions, it is more cost effective to buy—while in others it makes more sense to create an in-house solution. The make-or-buy analysis should happen in the initial scope definition to determine if the entire project should be completed in-house or procured. As the project evolves, additional make-or-buy decisions are needed.

The initial costs of the solution for the in-house or procured product must be considered, but so too must the ongoing expenses of the solutions. For example, a company may elect to lease a piece of equipment. The ongoing expenses of leasing the piece of equipment should be weighed against the expected ongoing expenses of purchasing the equipment and the monthly costs to maintain, insure, and manage the equipment.

The $200 per month is divided into the difference between creating the software internally and buying the software—which is $8,000 divided by $200, or 40 months. If the software is to be replaced within 40 months, the company should buy the software. If the software that will be created will not be replaced within 40 months, it should build the software.

There are multiple reasons why an organization may choose to make versus buy. A project team can make or buy as much as it needs to complete the project scope. Here are some common examples or reasons to make or buy:

• How long will the assembly take? If you or a staff member has experience assembling hardware components, an accurate prediction can be made as to the length of the assembly process. From that information, you can calculate the cost of the assembly process. This dollar amount, assigned to the assembly process, can help you determine if it is more cost effective to assemble the hardware in-house versus allowing the vendor to assemble the hardware.

• What other tasks can the technician do? Consider the technician’s time, the cost of the time, and the other responsibilities the technician could handle on the project. It may be more valuable to the project if the vendor assembles the hardware and the technician moves onto other aspects of the project.

• Will the vendor guarantee the work? If the vendor is to assemble the hardware, that vendor should guarantee their work. Incorrectly configured hardware by the vendor could bring your project to a grinding halt. A vendor that is assembling the hardware you are purchasing is going to charge you adequately for the time and materials it takes to build the component according to your specifications. The vendor’s contract should include a guarantee that the hardware will arrive in working order and work in your environment.

• Is it worth the headache? The headache factor sometimes outweighs the money saved by doing the work in-house. In some instances, especially when the savings from doing the work in-house are nominal, it is more effective to allow the vendor to assemble the hardware. Let the vendor deal with installing the RAM, processors, and BIOS upgrades and configuration. Often it’s not worth the headache to do the work in-house. Will making it in-house create a new competency that can be leveraged for other projects?

• Do you have additional labor capacity? Not enough labor capacity?

Consider network operating systems such as Windows 2003 or Novell NetWare. Each requires the administrator to choose the type of licensing required for using the product on the network. For example, in a Windows 2003 environment, you may choose to use the per server licensing agreement, which requires that each connection to the server have a client access license purchased to allow the connection. Another type of licensing is the per device or per user method, which allows unlimited connections to the server from any seat in the network. The size of your network will determine the type of licensing you will want to use. Both Microsoft and Novell have enterprise-type licensing agreements that can save thousands of dollars in some instances.

When outsourcing a project, or considering outsourcing a project, ask the following questions:

• Is it cost effective? Consider the time, learning curve, implementation process, and the dollar amount associated with each variable and compare that to the figures from the vendor proposing to do the work.

• Is it productive? Again, consider the time of doing the work internally versus hiring an outside agency to complete the tasks. You should not only consider the dollar amount, but also the time involved to complete the project.

• Is the vendor reputable? Ask the vendor for references of similar work it has done before. Ask it for industry credentials from Microsoft, Novell, Lotus, CompTIA, and others.

• Is this an HR decision? Outsourcing a technology project may not even be the project manager’s decision. HR and management may have created contracts and agreements with staffing agents to complete the project work while you, the internal project manager, are to manage the external workers.

• Consider culture differences. Internal resources are familiar with the politics, priorities, and procedures within your organization. A vendor may have a completely different set of priorities, or a different definition of quality or immediate deadlines.

Outsourcing is not always the best solution, but sometimes it’s the sexiest to management. This is because the cost considerations, the internal learning curve, and other projects that may be on the horizon could conflict with the outsourced job. If you decide to consider outsourcing a project, get a fixed cost from the vendor—especially when proposing a budget to management. You may need to work with the vendor, or several vendors, to negotiate a fair cost for services and manage the purchase of the hardware separately to get a better sum price. Many vendors will give you a break on the price if you buy the hardware and the implementation through the same source.

Think about your own day as an IT professional. How many times have you set out to complete a task—for example, something as simple as troubleshooting a printer for a particular user—only to be summoned for more tasks along the way? You go to the printer to make certain it’s turned on, you check the power, pop open the printer, and check the toner. While you’re there, two folks begin asking you questions about how to create a macro for column numbering. Now your pager goes off, reporting that the SQL server is running out of disk space and the transaction log needs to be cleared.

The printer looks fine, but the user still can’t print. You get to her desk only to discover that Marcy, her neighbor, reports that her mouse won’t work. Get the picture? Or is it too close to reality? It’s just one thing after another all day long—and that user still can’t print.

As an IT project manager, your time is very valuable and has to be guarded from interruptions by users, pagers, and yet more users. I can hear you now, “Yeah, sure.” Seriously, think about the percentage of your day that is committed to putting out fires in proportion to the percentage of your day that can be dedicated to a project. Now think of the people on your project team and the same interruptions and activities that may delay them from completing their project tasks.

While you, the IT project manager, may not be the individual performing each step of the project’s implementation, you do have to be available to work with your team, resolve issues pertinent to the project’s success, and have time to track and report the status of the project. In some companies, you may have to wear several hats, as you’ll be supporting the users, working on each phase of the project, and tracking the project status. In others, you may have the luxury (or headache) of delegating the phases to individuals and managing several projects at once. In either situation, your ability to manage your time, and the time of your team, is crucial to the success of the project.

As the table illustrates, you can accurately predict the cost associated with each team member’s time by using the individual’s hourly rates, the time you predict it will take the team member to finish the task, and the best, worst, and average scenarios. This worksheet has been created for you in an Excel document called Time Cost Worksheet that is on the CD-ROM. You will be using the worksheet in an upcoming exercise.

Another advantage of this worksheet is that it can help you determine what tasks should be assigned to what users. For example, you may not want to assign Jane, who has an hourly rate of $40.14, to pulling cable—a mundane and tiresome chore. A bigger bang for your budget dollars would be to assign this task to Holly or Sam. If you could, you may assign the task to both Holly and Sam, who have a combined hourly wage of $34.51. This would put two workers on the task and would cost less per hour than Jane’s hourly rate. In addition, two people could, in this instance of pulling cable, finish the job in nearly half the time, or better, than one individual. Of course you’ll have to consider two things when assigning resources to tasks:

While finding the best- and worst-case scenarios is a quick and easy way to arrive at an average cost, you can use a slightly more sophisticated method. It’s called the Program Evaluation and Review Technique, also known as PERT. PERT is ideal for time estimates to complete activities. PERT uses a weighted average to predict how long the activity may take. You’d say that as, “pessimistic plus the optimistic, plus four times the most likely, divided by six.” It’s divided by six because of one count for pessimistic, one count for optimistic, and four counts for most likely. The following table shows this formula in action (it’s also included on the Time Cost Worksheet on the CD):