Situation: A company used internal resources for a small in-house project – developing web-based time sheets. They had obtained bids for external development but found that internal resources could do the same time for about half of what external development would cost. The trade-off was slow delivery. What are the pros & cons of in-house software development?
Advice from the CEOs:
- Why was delivery slow?
- When faced with a choice in priority between the internal development task vs. responding to the needs of external customers, internal delivery was pushed back in time.
- This is exactly what others have experienced when faced with the choice between internal and external software development. Look at the trade-off, not just in terms of “cost” quoted by internal developers, but also in terms of opportunity cost. The real cost is what these resources could have provided had the same time been spent to support external revenue-producing projects.
- Just as the company did in the first place, get external bids. If the use of internal resources is an option, compare time to delivery forecasted using internal resources plus any other internal costs. Then analyze the opportunity cost of not dedicating these resources to revenue-producing activity. The sum of these costs should then be compared with external bids. Adding opportunity cost to the analysis can make a big difference.
- Once the company has this information, make a business decision as to the best choice. Keep in mind that unless the priorities of the internal group doing the development work are changed, they may not respond to the needs of the internal project on a timely basis. It will be the CEO’s call as to whether the developers prioritize their time to support external projects or the internal project.
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