Buy vs. Build?


By Suzanne Matta, Senior Manager

Recently, I visited friends who had relocated to Virginia.  Two months ago, they sold their home in Rhode Island to begin a new chapter in their lives. They had several good reasons for wanting to do so: a warmer climate devoid of snow (and the requisite snow shoveling), more land for their growing family, and a slower paced life.

Deciding where to move was an easy decision. They had been to Virginia several times, and liked the countryside around the Fredericksburg area.  So they packed up their belongings, including 4 dogs and 6 chickens, and headed south. Once down there, they took up temporary residence in the nearby campground.  They had made the difficult decision to relocate, but realized they had an even more difficult decision ahead – should they buy an existing home or build one from scratch?  There was much to consider with either decision.

The biggest advantages to buying an existing home were the convenience and cost.  If my friends placed an offer on a house and it was accepted, they could be in their new home in about 60 days.  But there were drawbacks: an existing home would most likely not have all the amenities they were looking for and customizations would be needed.  Although they would certainly get the house inspected, there also might be hidden problems or unexpected challenges when they tried to renovate, which could be costly.

Building a new home had its pros and cons as well.  If they built, they could have everything they wanted, exactly how they wanted it (assuming nothing was overlooked and no mistakes were made.) However, it would require a time commitment that could be daunting.  Many who have built their own houses will attest to project delays and cost overruns.  Issues such as a general contractor who is spread too thin, inclement weather, and inspection delays can make building a dream home a nightmare.  Building could also put them in a financial bind, as they would be racing against time to complete the project before their budget ran out.

If your firm is evaluating a build vs. buy decision regarding compliance software, you may find yourself facing many of the same decisions as my friends.  When building, consider that the tendency is to underestimate the amount of time and effort required.  Often after many months of development and testing, the initial product only satisfies the most rudimentary requirements with necessities such as user interfaces, streamlined workflows and reporting capabilities relegated to a list for future enhancements.  After the initial deployment come bug fixes and ongoing user enhancement requests, which can be costly, resource intensive and possibly derail other planned projects.  In addition, you may find it difficult to keep your most talented engineers interested in ongoing upgrades once the challenge of initial development is complete.  

Similar to the foundation for a house, the technology platform must be adequate as well, and engineers with the requisite experience on that platform may be hard to find.  You will need to consider how the software will integrate with other systems such as a trading platform, accounting system, and data warehouse or fund administrators. These are all important factors that will have an impact on technical and functional decisions.

Like the architect who designs house plans, you will need someone to document your software requirements and workflows.  You will need business analysts, systems analysts, UI engineers, testing and QA analysts and the tireless support of the end users themselves.

If the decision is to buy, bear in mind that no off-the-shelf product will satisfy every need.  It’s important to carefully evaluate the software offering and identify product gaps for potential showstoppers.  More often than not, you will require product enhancements.  Ask specifically how and where your requested enhancements fit into the vendor’s product roadmap and the expected date the enhancements would be delivered.  If you are told the enhancements will be available in a future version of the product, remember there can be significant delays in between one version and another.  Always ask for a delivery date rather than a version. For larger enhancement requests, you should expect to work closely with the vendor through the analysis and development process.  Ask for regular follow up meetings to track the progress and request demos to ensure the final product meets your expectations.  Additionally, it may not be possible for the vendor to add larger enhancements to ‘dot’ versions and they may require you to take a major release.  Plan to spend more time and resources upgrading and testing as a result.

Finally, with either a build or buy decision, like the general contractor who oversees the building of a house, you will need a project manager to accomplish the project objectives and manage costs, timelines and quality.

As for my friends, they decided to build.  After reviewing architectural designs and comparing their budget to the final estimate, they settled for a modest house.  (A garage would be added later as an ‘enhancement’).  As the first shovel went into the ground, they realized their contractor had the wrong design plans, and they had to stop the project.  Pass the Rolaids, please.