Build or Buy Calculator

1. What is the Build or Buy Calculator?

Definition: This calculator computes the one-time cost to build software in-house, helping businesses decide whether to build their own software or buy an existing solution. It considers the number of developers, time to build, salary costs, and overhead expenses.

Purpose: It is used by businesses to evaluate the financial implications of building software, enabling informed decisions about whether building in-house is cost-effective compared to purchasing a ready-made solution.

2. How Does the Calculator Work?

The calculator uses the cost-to-build formulas, as shown in the image above:

$ \text{Cost to Build} = N \times T \times \text{CE} $

Where the cost per employee ($ \text{CE} $) is:

$ \text{CE} = \text{SE} \times (1 + \text{OV}) $

Where:

$ \text{Cost to Build} $: Total one-time cost to build the software ($);
$ N $: Number of developers on the team;
$ T $: Time to build the software (months);
$ \text{CE} $: Cost per employee ($ per month);
$ \text{SE} $: Monthly gross salary per employee ($);
$ \text{OV} $: Overhead costs as a percentage of the gross salary (e.g., 20% = 0.2).

Steps:

Enter the number of developers ($ N $).
Enter the time to build the software ($ T $, in months).
Enter the monthly gross salary per employee ($ \text{SE} $, in $).
Enter the overhead costs ($ \text{OV} $, as a percentage).
Calculate the cost per employee ($ \text{CE} $) using the formula above.
Compute the total cost to build using the main formula.
Display the result, formatted in scientific notation if the absolute value is less than 0.001, otherwise with 4 decimal places.

3. Importance of Build or Buy Calculation

Calculating the cost to build is essential for:

Cost Comparison: Helps compare the cost of building software in-house versus buying an existing solution, aiding in strategic decision-making.
Budget Planning: Ensures businesses allocate sufficient funds for software development, avoiding unexpected expenses.
Resource Allocation: Assists in determining whether the company has the necessary resources (e.g., skilled developers, time) to build software internally.

4. Using the Calculator

Example 1: Calculate the cost to build software with a team of 5 developers, taking 6 months, with a monthly salary of $8,000 per employee and overhead costs of 20%:

Number of Developers ($ N $): 5;
Time to Build ($ T $): 6 months;
Monthly Salary ($ \text{SE} $): $8,000;
Overhead Costs ($ \text{OV} $): 20% = 0.2;
Cost per Employee ($ \text{CE} $): $ 8,000 \times (1 + 0.2) = 8,000 \times 1.2 = 9,600 $;
Cost to Build: $ 5 \times 6 \times 9,600 = 288,000.0000 \text{ \$} $.

Example 2: Calculate the cost to build software with a team of 3 developers, taking 4 months, with a monthly salary of $10,000 per employee and overhead costs of 15%:

Number of Developers ($ N $): 3;
Time to Build ($ T $): 4 months;
Monthly Salary ($ \text{SE} $): $10,000;
Overhead Costs ($ \text{OV} $): 15% = 0.15;
Cost per Employee ($ \text{CE} $): $ 10,000 \times (1 + 0.15) = 10,000 \times 1.15 = 11,500 $;
Cost to Build: $ 3 \times 4 \times 11,500 = 138,000.0000 \text{ \$} $.

5. Frequently Asked Questions (FAQ)

Q: What does the cost to build include?
A: The cost to build includes the salaries of the development team, adjusted for overhead costs like insurance, benefits, and office expenses, multiplied by the number of developers and the time to build.

Q: What factors should be considered when deciding to build or buy?
A: Consider the cost to build, the cost to buy (including licensing fees), the time to market, the need for customization, and the availability of in-house expertise. Building is often better for highly customized solutions, while buying is faster for standard needs.

Q: Are there additional costs not covered by this calculator?
A: Yes, this calculator focuses on the one-time cost to build. Additional costs like ongoing maintenance, updates, training, and infrastructure (e.g., servers) should also be considered when deciding to build or buy.