Make-or-Buy Case Interview: Decision Framework and Practical Examples

A make-or-buy case interview tests whether you can decide between building a capability internally or outsourcing it using structured, business-driven logic. In a make-or-buy case interview, you are expected to compare costs, capabilities, control, speed, and long-term strategic risk rather than rely on intuition. Candidates often struggle because they focus only on numbers and miss the broader build vs buy decision consulting logic that interviewers evaluate.

TL;DR – What You Need to Know

A make-or-buy case interview evaluates how candidates choose between internal development and outsourcing by balancing cost analysis with strategic, operational, and long-term business considerations.

• Interviewers assess structured decision logic, trade-off evaluation, and business judgment rather than searching for a single correct answer.
• Make-or-buy decisions commonly arise in operations, growth, and vertical integration cases where execution control and cost structure affect outcomes.
• A clear make or buy decision framework compares incremental costs, internal capabilities, execution control, time to market, and strategic flexibility.
• Effective cost analysis focuses on marginal costs, fixed versus variable trade-offs, and hidden outsourcing risks rather than total historical spending.
• Strong recommendations clearly state assumptions, summarize trade-offs, and communicate risks in a concise, executive-style conclusion.

What a Make-or-Buy Case Interview Tests

A make-or-buy case interview tests your ability to determine whether a company should build a capability internally or outsource it by applying structured decision logic and sound business judgment. Interviewers evaluate how you assess costs, operational feasibility, strategic control, and long-term risk before making a recommendation.

Interviewers are not looking for a single correct answer. They are evaluating how disciplined and defensible your reasoning is.

You are typically assessed across three dimensions.

• Structured decision logic: You demonstrate structure by applying a clear make or buy decision framework that separates financial analysis from strategic considerations and follows a logical sequence.
• Trade-off evaluation: You explain trade-offs between cost savings, internal capability building, speed to market, and vendor dependency risk to show why one option creates more long-term value.
• Business judgment and communication: You show judgment by stating assumptions clearly, acknowledging uncertainty, and aligning your recommendation with the company’s broader strategy.

This case type tests whether you can treat the make-or-buy decision as a strategic choice supported by numbers rather than a narrow cost comparison.

When Make-or-Buy Decisions Appear in Consulting Cases

Make-or-buy decisions appear in consulting cases when a company must choose between building a capability internally or outsourcing it because the choice affects cost structure, execution control, or long-term strategy. These situations require more than a procurement mindset and demand structured evaluation.

You most often encounter this decision in the following contexts.

• Operations and supply chain cases: Companies consider outsourcing manufacturing, logistics, or support functions to reduce costs or improve operational flexibility.
• Growth and expansion cases: Firms evaluate whether to build new capabilities internally or buy them through external providers to enter markets faster.
• Vertical integration decisions: Cases examine whether internalizing a critical activity protects quality, margins, or intellectual property.

Recognizing when a make or buy decision framework applies helps you structure the case correctly from the outset.

Make-or-Buy Case Interview Decision Framework Explained

The make-or-buy case interview decision framework determines whether internal development or outsourcing creates more value by comparing costs, capabilities, control, speed, and strategic risk. Interviewers expect you to apply this framework systematically rather than anchor on a single factor.

A clear framework typically follows five steps.

• Define the scope of the decision: Clarify which activity is under consideration and why the decision matters now.
• Compare economic costs: Analyze fixed and variable costs, setup investments, and ongoing operating expenses for each option.
• Assess internal capabilities: Evaluate whether the company has the skills, systems, and capacity required to execute effectively.
• Evaluate strategic control and risk: Consider quality control, vendor dependency risk, and protection of proprietary knowledge.
• Consider speed and flexibility: Compare time to market and the ability to scale or adapt over time.

This structure ensures balanced analysis and prevents premature conclusions.

How to Analyze Costs in a Make-or-Buy Decision

Cost analysis in a make-or-buy decision focuses on incremental and marginal costs rather than total historical spending. Interviewers expect you to distinguish relevant costs from sunk costs and compare options on an equivalent basis.

You should begin by separating cost types.

• Fixed costs: Setup investments such as equipment purchases, hiring, training, or systems required to build internally.
• Variable costs: Ongoing per-unit expenses such as labor, materials, or supplier fees.

You then apply marginal costing logic.

Only costs that change as a result of the decision should influence the recommendation, while existing overhead that remains unchanged should be excluded.

Strong candidates also account for hidden costs such as coordination effort, contract management, and switching costs when outsourcing.

Capability, Control, and Strategic Risk Trade-Offs

Capability, control, and strategic risk trade-offs often determine the correct make-or-buy decision when financial differences are small. Interviewers expect you to evaluate these factors alongside cost analysis to demonstrate judgment.

Key considerations include the following.

• Core versus non-core activities: Capabilities that directly support competitive advantage are often better developed internally.
• Quality and execution control: Outsourcing can reduce oversight and increase operational risk if performance standards are difficult to enforce.
• Vendor dependency risk: Reliance on external providers can reduce bargaining power and limit flexibility over time.
• Strategic flexibility: Building internally may take longer but can create long-term optionality and learning benefits.

Addressing these trade-offs shows maturity beyond numerical analysis.

Make-or-Buy Case Interview Example Walkthrough

A make-or-buy case interview example typically involves a company deciding whether to outsource an operational function or build it internally. Your objective is to apply the framework logically and communicate a clear recommendation.

Consider a manufacturing company evaluating whether to outsource component production.You first define the scope and objectives, such as reducing costs while maintaining reliability.

You then compare incremental internal production costs with supplier pricing, including setup investments. Next, you assess internal capabilities such as production expertise and capacity constraints.

Finally, you evaluate strategic risks such as quality control and supplier dependence. A strong conclusion summarizes trade-offs and explains why one option best supports the company’s long-term strategy.

Common Mistakes in Make-or-Buy Case Interviews

Common mistakes in make-or-buy case interviews occur when candidates oversimplify the decision or rely too heavily on cost comparisons. Interviewers penalize answers that lack structure or ignore strategic implications.

Frequent errors include the following.

• Treating the decision as purely financial: Ignoring capability and control considerations weakens the recommendation.
• Using total costs instead of marginal costs: This approach leads to incorrect conclusions and flawed logic.
• Skipping assumptions: Failing to state assumptions makes the analysis difficult to evaluate.
• Giving vague recommendations: Weak conclusions avoid commitment and lack justification.

Avoiding these mistakes improves clarity and credibility.

How Interviewers Expect You to Communicate the Decision

Interviewers expect you to communicate a make-or-buy decision clearly, concisely, and with explicit trade-offs. The quality of the reasoning matters more than the choice itself.

A strong conclusion includes three elements.

• A clear recommendation State whether the company should make or buy and under what conditions.
• Supporting rationale Summarize cost findings and strategic considerations succinctly.
• Risks and mitigation Acknowledge uncertainty and explain how risks could be managed.

This communication style demonstrates executive-level thinking and sound business judgment.

Frequently Asked Questions

Q: How do you solve a make-or-buy case interview?
A: To solve a make-or-buy case interview, you compare incremental costs, internal capabilities, execution control, time to market, and long-term strategic risk before making a clear recommendation.

Q: What is the make or buy decision in consulting interviews?
A: The make or buy decision in consulting interviews asks whether a company should build a capability internally or outsource it based on economics, capability gaps, control considerations, and strategic fit.

Q: What is the make or buy decision framework?
A: The make or buy decision framework is a structured approach that evaluates costs, internal capabilities, execution control, timing, and long-term strategic impact to determine whether building or outsourcing creates more value.

Q: How do you calculate a make-or-buy decision using marginal costs?
A: To calculate a make-or-buy decision using marginal costs, you compare only costs that change between options, focusing on fixed versus variable cost tradeoffs while excluding sunk and unchanged overhead.

Q: What is an example of a make-or-buy decision?
A: An example of a make-or-buy decision is a manufacturer choosing between producing components internally or using contract manufacturing based on cost efficiency, quality control, and long-term strategic flexibility.