PMP Practice Questions #114
As the project manager for a new product launch at an electronics company, you are faced with a critical decision regarding the procurement of a specialized component. The component is essential for your product, and two options are under consideration. Both options are known to meet the project’s high-quality standards. Your primary concern is managing the project within its budget constraints. The following information has been provided:
Manufacturing the component in-house:
Initial setup costs: $40,000
Additional variable costs: $60,000
Total in-house manufacturing cost: $100,000
Purchasing the component from an external supplier:
Quoted price for the required quantity: $120,000
No additional costs are involved.
Which option should you recommend and why?
A) Manufacture the component in-house, as it presents a lower total cost compared to purchasing from an external supplier.
B) Purchase the component from the external supplier, assuming the higher cost is justified by avoiding the complexities of in-house production.
C) Manufacture the component in-house, focusing on the long-term benefits of developing production capabilities.
D) Purchase the component from the external supplier, focusing on the simplicity of procurement and the avoidance of initial setup costs.
Analysis:
In this scenario, the project manager at an electronics company must make a critical procurement decision for a vital component, essential for a new product launch. With quality standards equally met by both options, the focus shifts to budget management. The in-house manufacturing option offers a total cost of $100,000, while purchasing from an external supplier is quoted at $120,000. This setup provides a classic scenario for a make-or-buy decision, primarily driven by cost considerations, given the parity in quality between the two options.
Analysis of Options:
Option A: Manufacture the component in-house, as it presents a lower total cost compared to purchasing from an external supplier. Recommend manufacturing the component in-house because it results in a lower total cost ($100,000) than purchasing from an external supplier ($120,000). This option is directly supported by the information provided, making it the most straightforward choice for minimizing project costs, thereby addressing the project manager’s primary concern of staying within budget.
Option B: Purchase the component from the external supplier, assuming the higher cost is justified by avoiding the complexities of in-house production. Suggests purchasing the component from an external supplier, rationalizing that the higher cost might be justified by circumventing the complexities of in-house production. This option introduces an assumption about production complexities not detailed in the scenario. The question centers on budget management without delving into operational complexities, making this justification speculative and not grounded in the provided details.
Option C: Manufacture the component in-house, focusing on the long-term benefits of developing production capabilities. Proposes in-house manufacturing with an emphasis on the long-term benefits of enhancing production capabilities. Like Option B, this suggestion infers benefits (long-term production capabilities) that are not explicitly prioritized in the decision-making criteria outlined in the question. While potentially valid, this rationale assumes priorities beyond the question’s scope, which focuses on immediate budget considerations.
Option D: Purchase the component from the external supplier, focusing on the simplicity of procurement and the avoidance of initial setup costs. Advocates for purchasing from an external supplier, highlighting the simplicity of procurement and avoiding setup costs. This option, too, makes assumptions by prioritizing simplicity and setup cost avoidance over clear budgetary advantages presented. The question explicitly frames the decision around budget constraints, making this option less aligned with the stated objective due to its emphasis on factors not prioritized in the scenario.
Conclusion: Option A is the most aligned with the project’s budgetary constraints and is directly supported by the information provided, making it the optimal choice. It avoids speculative assumptions about production complexities, long-term benefits, or procurement simplicity, focusing instead on the clear cost-saving advantage of in-house manufacturing. This decision exemplifies prudent budget management, crucial for effective project management, by adhering strictly to the decision criteria of minimizing costs without sacrificing quality.
PMP Exam Content Outline Mapping
| Domain | Task |
|---|---|
| Process | Task 11: Plan and manage procurement |
Topics Covered
- Make or Buy Decision
