HKSM

A documented determination of which project work will be performed internally and which will be obtained from external providers. It captures the rationale and boundaries that guide procurement, resourcing, budget, schedule, and risk choices.

Key Points

• Formal output of Plan Sourcing Strategy that sets the make-versus-buy boundaries for the project.
• Grounded in capability, capacity, cost, schedule, risk, quality, compliance, and intellectual property considerations.
• Maps work packages or deliverables to insource, outsource, or hybrid delivery models, with the preferred contract type.
• Includes rationale, key assumptions, constraints, and triggers to revisit the decision.
• Summarizes financials such as total cost of ownership, breakeven, or NPV comparisons.
• Defines governance elements: decision rights, approval authorities, exception handling, and KPIs or SLAs.
• Directly informs procurement documents, resource plans, schedules, budgets, and risk responses.

Purpose

Provide clear guardrails so the team knows where to build internally and where to procure externally. It accelerates consistent decisions, reduces rework, and aligns sourcing with organizational policies and strategy. It also balances cost, speed, risk, and control to maximize project value.

How to Create

• Gather inputs: business case, scope baseline and WBS, requirements, cost and schedule estimates, internal capability and capacity assessments, market research, risk register, procurement policies, security and compliance needs.
• Evaluate options using cost-benefit and TCO analysis, breakeven or NPV where useful, plus qualitative criteria such as strategic importance, control, IP, data residency, security, vendor maturity, and time to market.
• Select delivery models for outsourced portions (e.g., staff augmentation, managed service, fixed-price, time-and-materials, SaaS, build-operate-transfer) and align with suitable contract types.
• Assess and allocate risks between buyer and seller, define mitigations, and note dependencies or transition risks.
• Define performance objectives, KPIs, and SLAs, with high-level acceptance criteria and success measures.
• Document a decision matrix, selected option, rationale, assumptions, constraints, governance rules, exception thresholds, revisit triggers, and expected impacts on budget and schedule.
• Review with key stakeholders (sponsor, procurement, legal/compliance, security, operations), obtain approvals, and baseline the decision.

How to Use

• Drive procurement planning: shape SOWs, RFP/RFQ content, evaluation criteria, vendor shortlists, and contract strategy.
• Inform resource and capacity planning for insourced work, and update schedule activities, dependencies, and lead times.
• Feed the cost baseline and funding plans; reflect sourcing-related contingencies and reserves.
• Update the risk register with sourcing risks, owners, and responses tied to the chosen make-or-buy approach.
• Apply as a governance checkpoint at stage gates and through change control before deviating from the decision.
• Guide compliance, IP, data protection, and audit requirements that must be embedded in contracts and team practices.
• Monitor KPIs and SLAs; trigger a revisit when thresholds are breached or assumptions materially change.

Ownership & Update Cadence

• Owner: Project manager with the procurement lead; approvals by sponsor or steering committee, with legal/compliance as required.
• Repository: Part of the sourcing strategy or procurement management artifacts in the project document library.
• Update on major scope changes, funding or schedule shifts, market or vendor changes, new regulatory requirements, significant risk events, capacity changes, or at predefined stage gates.
• Control updates through the integrated change control process with versioning and traceability.

Example

An analytics platform project decides to insource data modeling and governance to retain IP and ensure data residency, while outsourcing ETL development and system integration to a certified partner to meet an aggressive deadline.

• Insourced: Data model design, metadata standards, and operational runbooks using existing architects and data stewards.
• Outsourced: ETL pipelines and integration testing under a fixed-price contract with defined SLAs and penalties.
• Rationale: Internal expertise on sensitive data, external partner offers speed and specialized tools.
• KPIs: Data load success rate ≥ 99.5%, nightly batch window ≤ 2 hours, defect leakage ≤ 2% post-deployment.
• Revisit trigger: If internal capacity drops below 60% availability or vendor misses two consecutive SLA targets.

PMP Example Question

While planning sourcing, the team completes a document that maps WBS work packages to internal teams or external suppliers, includes make-or-buy rationale, KPIs, and triggers to revisit choices. How should the project manager use this document next?

1. Begin contract negotiations immediately with the preferred vendor.
2. Use it to shape the RFP/SOW, resource plan, and update the risk and cost baselines.
3. Archive it because contracts will capture the necessary details.
4. Replace it with the stakeholder engagement plan.

Correct Answer: B — Use it to shape the RFP/SOW, resource plan, and update the risk and cost baselines.

Explanation: The decisions guide procurement documents and internal staffing, and they inform cost and risk updates. Negotiation and contracting come after the RFP and evaluation steps.