A Company Is Deciding If It Should Do Design of a Product

question 101

Essay

A company is deciding if it should do design of a product in-house or outsource the design. If outsourced the cost for a low bidder would be $40,000 and the cost for an expensive bidder $100,000. To do the design in-house would require over-time for an already stretched design team with total costs of $70,000. If all three designs (in-house, low bid, high bid) are equal in quality and the likelihood of finding a low bidder is 60% (meaning that 40% of the time the firm will have to hire the expensive bidder), should the company outsource design or do it in-house?

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