Appearance
Outsourcing costs $12–35 per hole. In-house costs $4–12 per hole — after a $200,000–800,000 machine investment. The breakeven is 500–5,000 holes per year. Below that, stay with contract drilling. Above it, in-house saves 20–40% and gives you control over quality, lead time, and intellectual property.
The Make-or-Buy Decision
The decision to invest in in-house deep hole drilling capability is a classic make-or-buy analysis with a large capital component.
Current Cost of Outsourcing
| Hole Characteristics | Typical Contract Price per Hole |
|---|---|
| Simple, Ø10 mm × 200 mm, 4140 steel | $8–15 |
| Moderate, Ø25 mm × 500 mm, 4140 steel | $12–25 |
| Complex, Ø12 mm × 400 mm, Inconel 718 | $25–60 |
| Large bore, Ø60 mm × 1,200 mm, ST52 | $18–40 |
Estimated In-House Cost
| Cost Component | Cost per Hole (Ø25 mm × 500 mm, 4140 steel, batch of 500) |
|---|---|
| Tooling (gun drill wear) | $1.50–3.00 |
| Coolant and consumables | $0.80–1.50 |
| Energy | $0.60–1.20 |
| Labour (including burden) | $2.50–5.00 |
| Maintenance allocation | $0.80–2.00 |
| Total direct cost | $6.20–12.70 |
Breakeven Analysis
Breakeven Volume Formula
Breakeven (holes/year) = Total Annual Machine Cost / (Contract Price per Hole − In-House Cost per Hole)Where Total Annual Machine Cost includes: depreciation, financing cost, maintenance, insurance, and floor space.
Worked Example
| Parameter | Value |
|---|---|
| Machine investment | $350,000 (gun drilling machine, installed) |
| Annual machine cost (depreciation + financing + maint) | $70,000/year |
| Contract price per hole | $18 |
| In-house cost per hole | $9 |
| Breakeven | $70,000 / ($18 − $9) = 7,778 holes/year |
At 8,000 holes per year, in-house saves $72,000 annually — a 19.4% return on the $350,000 investment.
Non-Financial Factors
| Factor | In-House Advantage | Outsourcing Advantage |
|---|---|---|
| Quality control | Direct control over process | Relies on supplier's QC |
| Lead time | Hours to days | Weeks (queue + shipping) |
| Design iterations | Rapid prototyping | Each iteration costs |
| IP protection | Complete | Parts and prints shared |
| Capacity flexibility | Absorbs demand changes | Limited by contract terms |
| Expertise development | Builds internal capability | No expertise retained |
Presenting the Business Case
Key Metrics for Capital Approval
| Metric | Target |
|---|---|
| Payback period | < 3 years preferred |
| Internal rate of return (IRR) | > 20% |
| Net present value (NPV) at 10% | Positive |
| Breakeven utilisation | < 60% of capacity |
Business Case Outline
- Executive summary: The recommendation and key numbers
- Current state: Outsourcing costs, lead times, quality issues
- Proposed solution: Machine type, configuration, investment amount
- Financial analysis: Breakeven, IRR, NPV, payback period
- Non-financial benefits: Quality, lead time, IP, capability
- Risk assessment: Volume risk, technology risk, execution risk
- Implementation plan: Timeline, installation, training, ramp-up
FAQ
What is a reasonable payback period for a deep hole drilling machine?
3 years or less is considered a strong investment case. 4–5 years is acceptable for strategic capability investments.
How do I forecast utilisation for a new deep hole drilling operation?
Start with current outsourced volume plus 20% for new applications that become viable with in-house capability. Apply a 65–70% utilisation rate for year one.
Should I include tooling cost in the business case?
Yes — tooling is often the second-largest cost after the machine. Include a complete tooling package estimate from the machine manufacturer.
What is the most common reason deep hole drilling business cases fail?
Underestimating utilisation risk. A machine running at 40% utilisation cannot justify its capital cost. Be conservative with volume forecasts.
How does quality improvement factor into the business case?
Quantify the cost of quality issues with outsourced parts: scrap, rework, inspection, and delayed deliveries. A 1% defect rate on 10,000 outsourced holes per year costs more than most buyers calculate.
Business cases depend on specific product mix, volume, and market conditions. The examples in this article are illustrative. Work with your finance team to develop investment criteria specific to your organisation. This article reflects industry practice as of 2026.