It’s a common question, when should I consider outsourcing work versus doing it myself. The way I see it there are a few different ways to look at the question, not all of them being equal. Today I want to explore the methodologies for determining buy versus do it yourself.
I will start by saying there is no right or wrong answer here. I tend to utilize more than one type myself, matching the decision to the situation. Keep that in mind as we explore the options.
Are You Capable of Doing The Work Yourself
Frankly this should be the first question you ask regardless of how else you make the decision. If you do not have the skill set to do something and do not reasonably think you can learn to do so, then you should pay for outsourcing.
Risk times Likelihood
For example, very few people should be servicing their heater or replacing their roof. Both situations require very specific skill sets that most people do not have. In fact, the situation is somewhat worse for these two examples. Making a mistake could be deadly, whether it be blowing up your house or falling off your roof.
The risk doesn’t always need to be life and limb. A risk of ending with a crap outcome should also be considered. For example doing plumbing in your house? Well in that case it is still the combination of risk and likelihood, but it is probably skewed higher in one case or the other. For example it is low likelihood that installing a new shower pipe will kill or maim you. It might do some decent financial damage, but that is about the limit. But if you already know you are horrible with plumbing then it’s probably a bad idea. For the record, I do plumbing on sinks, but I consider showers my do not cross line.
So our examples lead us to clarity on this criteria. The decision has to take into account both the risk of making a mistake and the likelihood of doing so. High risk and high likelihood means you should probably just pay someone.
The Joy Of Do It Yourself
Before I explore how time plays into the decision, which is the more complex area, I must pause to mention the joy of doing something yourself. For some activities an individual may receive extra value beyond the end result based on the actual accomplishment. This feeling can be very real and needs to be considered. I’ll say more about this later.
Time it Takes to Learn
Time is the next important function. We left off with risk and likelihood, but what if they are mitigable based on learning. Say you can watch a Youtube video that teaches you how to replace plumbing on a sink (been there done that) and your risk from messing it up is incredibly low. Well then we have to add in the concept of how long it takes for that learning. Too long a learning curve might make it a better idea to buy.
So for example we can probably all learn to build furniture. The risk is low and simple furniture is easy enough that you likely will have no issues should you spend long enough to learn. Of course it will probably take you a long time to learn. So we have to add that to the decision. A note here, for some activities once you learn them they stay with you. So if it’s an activity you forsee executing frequently you should allocate the time spent learning across all the times you may need to do the action.
Time it takes to Do It Yourself
But there is more. There also has to be the concept of how long it takes you to actually do the task. After all we could all whittle stick into a toothpick without much learning, risk, or likelihood. Doing so, however, could take days. At some point the time to do something does not make it worth it.
A word of warning of course, not all outsourcing saves time. For example you can outsource someone replacing your windshield wipers on your car. For anyone that knows anything this takes all of a minute to do. Or you can go to a car dealer and wait an hour in line for them to charge you more and spend 5 minutes doing it. For any comparison you need to calculate the additional time it takes you to learn and do over the time it takes to outsource. That is what will help you make the decision.
Cost of Time, What is Time Worth
Combining the two times, learning and action, we need to compare them to something. I.E. how do you decide that it’s cheaper to buy something then it is to build it. The answer lies with valuing time, known from here on as Cost of Time. There are multiple methodologies here we can explore:
1) The simple one is, do you have the time available? Are you doing anything else right now? Ok why not. This is for smaller activities where over thinking is not worth it. For example I could pay someone to come to my house and wash my dishes. But the reality is it takes me about 20 minutes a week to load the dish washer. I can easily find 20 minutes of my week to do so. Therefore why would I outsource it.
2) The next level of complexity is, do you have something better you want to do with that time. I.E. any action you make has an opportunity cost representing the thing you can’t otherwise do. For most items that opportunity cost is spending time doing a hobby, with family, or having fun. So is outsourcing that item going to cost you something irreplaceable like missing your child’s sporting event? In that case you should just outsource.
3) We’re still in soft costs in items 1 and 2. For item 3 we move to the harder cost. Particularly, can you utilize that time on another activity to make more money then outsourcing costs? This hard calculation is the most controversial part of determine do versus buy. Let’s explore that a bit more.
Utilize the Time Making Money
Some extreme versions of hard cost analysis of the value of time consider how much you make in your job an hour. That value is considered the value of an hour to you. In this methodology it make sense to never do anything more expensive then your hourly rate. The problem of course is very few people can choose to make the same dollar amount for each additional hour they work. So for example a salaried employee will not make an hour more in his paycheck whether he works another hour or not. So in their case it’s probably not a good idea to use their normal salary as a measure of the value of time. Even for hourly employees it’s likely their employer cuts off their overtime at some point. So at least in general this methodology does not hold water.
Employment and Opportunity Cost
But… And there is always a but.. there are cases where your income from your job should be used. Perhaps the activity requires you to take off from work to execute. Or more likely perhaps the best time for you personally to do it is during a time when you would otherwise be working. For example, back when my wife was still full time we hired people to clean our home. This was because when we were not at work we wanted to spend the time with each other or our kids. As such the best time to do cleaning was while we were at work. Therefore the cost of cleaning was directly comparable to one of us ducking out of work earlier (or not spending time with our kids which we already covered). So it made sense to hire a cleaner. When my wife became a stay at home mom we dropped the cleaners since there was no work opportunity cost.
A Side Hustle and Opportunity Cost
A side hustle or self employment business might also be a more legitimate usage of salary per hour as a comparison. Take preschool. My youngest child goes to preschool 2 days a week. We will ignore for a moment that one of the reasons we do this is for socialization, essentially avoiding a risk of our child not learning how to interact with others. Instead let’s focus on the costs. My wife uses the 3-4 hours my son is at school each week to work on her self employed gig. Without this time she would only be able to do so after the kids were in bed, essentially ensuring she would not be able to keep up. As a result my wife’s hourly rate is directly comparable to the cost of day care. If it were less then strictly on financial terms we would be better off having our kids at home if day care was more expensive. So her salary provides the value to multiply by the time and compare to the cost of outsourcing.
Value of Do It Yourself
The final thing to consider is there may be outside benefits to doing something yourself. I already mentioned the joy of doing something yourself, but there may be other benefits. Perhaps you’ll learn a new skill that is applicable in other areas of your life. For example I could outsource the marketing of the Full Time Finance site. Even if it becomes big though, I suspect that will never happen since I started this site to learn about marketing for my day job. That value goes beyond the actual activity.
I might also believe I can do something better than someone else can. This could be because I have more skill or just because since it is mine I’ll pay more attention to detail. So for example I always wash my own car. Why? Cause I’m convinced I’m less likely to scratch my car. Sometimes it really is hard to find good help you trust. If it’s either likely you will not find good help or likely you will worry you won’t, then it might be a good idea to just do it yourself. In essence this is the same risk*liklihood but coming from the outsourcer.
Putting It All Together, Buy Versus Do It Yourself
So now we have all the factors, but how do we put them together? Well lets see, if we wanted to be fully empirical it would be:
Risk*Liklihood of screwing it up+ Cost of Time*((Time It Takes to learn/number of time expected+time it takes to do-Time spent outsourcing))+additional value of doing something yourself
The Cost of Paying Someone + Risk*liklihood of the outsourcer having an issue
Then just take the lower.
How do you determine buy versus do?