What is the Build vs Buy Model and how does it work?
The Build vs Buy Model compares the Net Present Value of Total Cost of Ownership for two paths: building in-house versus purchasing externally. Year 0 captures upfront investment plus any opportunity cost of delay; subsequent years add inflation-adjusted operating or licensing costs (Build's costs are offset by an annual customization value benefit). An effective discount rate combines your discount rate and the prevailing interest rate, bringing every future cost back to today's value so the two paths are directly comparable.
Fill the form below to generate your results:
Selecting an industry pre-populates sector-typical defaults you can override.
Evaluation Parameters
Monthly value lost while waiting for the slower option to launch.
Annual value generated by having a custom-built solution. Subtracted from Build's annual operating costs.
Build Option
Buy Option
The Buy option presents a lower NPV of Total Cost of Ownership ($220,649 less, 47.2% savings) over the 5-year analysis period, indicating a more financially favourable strategic path.
Cumulative NPV of TCO
| Period | Build NPV | Buy NPV |
|---|---|---|
| Year 0 | $590,000 | $300,000 |
| Year 1 | $23,009 | $40,619 |
| Year 2 | $21,161 | $36,665 |
| Year 3 | $19,447 | $33,096 |
| Year 4 | $17,861 | $29,874 |
| Year 5 | $16,394 | $26,966 |
Key Decision Drivers
Strategic Impact Analysis
How useful was this calculator?