Building vs. Buying: When to Customise D365 F&O vs. Using ISV Solutions
"We can build that ourselves."
These five words have launched countless Dynamics 365 customisation projects - and, unfortunately, many subsequent budget overruns, delayed implementations, and complex upgrade challenges.
Having done more than 20 D365 F&O implementations across Australia, I've witnessed firsthand the consequences of both hasty customisation decisions and missed opportunities where custom development would have delivered substantial value. The challenge? Most organisations lack a structured framework for making these critical build-vs-buy decisions.
In this post, I'll share the decision framework I've refined over years of guiding clients through this exact dilemma, helping you determine when customising D365 F&O makes strategic sense and when an ISV (Independent Software Vendor) solution will deliver superior long-term value.
These five words have launched countless Dynamics 365 customisation projects - and, unfortunately, many subsequent budget overruns, delayed implementations, and complex upgrade challenges.
Having done more than 20 D365 F&O implementations across Australia, I've witnessed firsthand the consequences of both hasty customisation decisions and missed opportunities where custom development would have delivered substantial value. The challenge? Most organisations lack a structured framework for making these critical build-vs-buy decisions.
In this post, I'll share the decision framework I've refined over years of guiding clients through this exact dilemma, helping you determine when customising D365 F&O makes strategic sense and when an ISV (Independent Software Vendor) solution will deliver superior long-term value.
The Real Cost of the Wrong Decision
Before diving into frameworks and recommendations, let's acknowledge what's at stake. The consequences of making the wrong build-vs-buy decision extend far beyond the initial implementation:
- For unnecessary customisations:A mining equipment distributor spent $165,000 customising the inventory management module, only to discover during their first major upgrade that maintaining these customisations would cost approximately $70,000 per upgrade cycle - costs they could have avoided with a $45,000 ISV solution with upgrade protection.1
- For missed customisation opportunities:A food manufacturer purchased a $90,000 ISV solution for product costing that delivered only 60% of their requirements. They ultimately spent an additional $120,000 customising the ISV solution - substantially more than the $130,000 a ground-up custom solution would have cost.2
Let's create a structured approach to avoid these costly missteps.
The Core Decision Framework: Five Key Factors
After analysing hundreds of build-vs-buy decisions, I've identified five critical factors that should guide your approach:
1/ Business Differentiation Assessment
Key Question: Does this functionality represent a core competitive advantage for your business?
This assessment examines whether the process is unique to your industry or organisation, if you compete in the market based on this process's efficiency, and whether standardising to an ISV solution would impact your competitive position.
When a process directly contributes to your market differentiation, customisation typically delivers more strategic value. Conversely, standardised processes with little competitive impact are often better served by ISV solutions.
A logistics company with proprietary loading algorithms that reduced shipping costs by 23% wisely invested in customising the warehouse management module, as this capability directly supported their market differentiation.
This assessment examines whether the process is unique to your industry or organisation, if you compete in the market based on this process's efficiency, and whether standardising to an ISV solution would impact your competitive position.
When a process directly contributes to your market differentiation, customisation typically delivers more strategic value. Conversely, standardised processes with little competitive impact are often better served by ISV solutions.
A logistics company with proprietary loading algorithms that reduced shipping costs by 23% wisely invested in customising the warehouse management module, as this capability directly supported their market differentiation.
2/ Total Cost of Ownership Analysis
Key Question: What is the full lifecycle cost of each option over a 5 year horizon?
Cost component
Custom development
ISV solution
Initial investment
Development costs
Licence costs
Implementation
Testing & deployment
Configuration & setup
Annual costs
Support & maintenance (15-20% of initial dev)
Maintenance fees (typically 20-25% of licence)
Upgrade costs
Adaptation costs (20-30% of initial dev per upgrade)
Usually included in maintenance
Knowledge transfer
Documentation & training
Vendor training & support
Integration
Often simpler with native D365
May require additional interfaces
A retail client comparing options for advanced pricing functionality found the 5-year TCO for custom development ($280,000) was substantially higher than an ISV solution ($190,000), despite the ISV's annual maintenance fees.
3/ Functional Fit Evaluation
Key Question: How closely does the ISV solution match your requirements without customisation?
Rather than bullet points, let's consider a simple rating system for evaluating functional fit:
Rather than bullet points, let's consider a simple rating system for evaluating functional fit:
Fit percentage
Recommendation
Reasoning
>85%
Strongly favor ISV solution
High alignment with minimal gaps justifies packaged approach
70-85%
Consider ISV with targeted extensions
Good base fit with reasonable customisation scope
50-70%
Detailed gap analysis required
Decision depends on criticality of missing functionality
<50%
Lean toward custom development
Poor fit likely means extensive customisation of ISV
A professional services firm chose an ISV time tracking solution that met 92% of their requirements out-of-the-box, avoiding an estimated $180,000 in custom development costs.
4/ Upgrade Impact Assessment
Key Question: How will each approach affect future system upgrades?
The upgrade impact varies dramatically between approaches. Custom development creates ongoing maintenance obligations, while ISV solutions shift this burden to the vendor - though with less control over timing and implementation.
For custom development, extension-based approaches (vs. overlays) significantly reduce upgrade complexity. Similarly, ISV solutions built using Microsoft's extension framework typically require less effort during upgrades than those using older customisation methods.
A manufacturing client abandoned plans for extensive customisations to the planning module after calculating that upgrade costs would exceed $100,000 per major release, opting instead for an ISV solution with a strong upgrade compatibility guarantee.
The upgrade impact varies dramatically between approaches. Custom development creates ongoing maintenance obligations, while ISV solutions shift this burden to the vendor - though with less control over timing and implementation.
For custom development, extension-based approaches (vs. overlays) significantly reduce upgrade complexity. Similarly, ISV solutions built using Microsoft's extension framework typically require less effort during upgrades than those using older customisation methods.
A manufacturing client abandoned plans for extensive customisations to the planning module after calculating that upgrade costs would exceed $100,000 per major release, opting instead for an ISV solution with a strong upgrade compatibility guarantee.
5/ Timeline and Resource Availability
Key Question: Which approach better aligns with your implementation timeline and resource constraints?
Custom development typically requires more time and internal expertise than implementing an ISV solution. This timeline difference can be critical for projects with fixed deadlines or resource constraints.
A distribution company facing a tight implementation deadline due to their legacy system being decommissioned chose an ISV warehouse management solution despite a higher cost, saving an estimated 8 weeks on their critical path.
Custom development typically requires more time and internal expertise than implementing an ISV solution. This timeline difference can be critical for projects with fixed deadlines or resource constraints.
A distribution company facing a tight implementation deadline due to their legacy system being decommissioned chose an ISV warehouse management solution despite a higher cost, saving an estimated 8 weeks on their critical path.
When to Customise D365 F&O: Ideal Scenarios
Based on my experience, customisation typically delivers superior value in these scenarios:
Scenario
Example
Typical Investment (AUD)
Core business processes with competitive advantage
A pharmaceutical distributor customised D365's inventory functionality to support their proprietary batch tracking system
$100,000 - $400,000
Industry-specific requirements with limited ISV options
A mining equipment maintenance company developed custom functionality for component tracking and rebuild history
$75,000 - $250,000
Cross-module integration needs
A manufacturer built custom functionality connecting product configuration, production, and project management modules
$120,000 - $350,000
Legacy system functionality replication
A financial services firm replicated key workflows from their legacy system to maintain process efficiency
$80,000 - $300,000
Data-intensive analytical capabilities
A retail chain developed custom margin analysis functionality with real-time inventory valuation
$90,000 - $275,000
When to Use ISV Solutions: Ideal Scenarios
Conversely, ISV solutions typically deliver better value in these scenarios:
Scenario
Example
Typical Investment (AUD)
Widely-standardised business processes
A distribution company implemented an ISV solution for transport management rather than building custom functionality
$50,000 - $150,000
Complex regulatory compliance requirements
A retail organisation chose an ISV solution for Australian tax compliance, avoiding ongoing ATO requirement updates
$30,000 - $100,000
Specialised functionality with steep development curves
A manufacturing company implemented an ISV advanced planning and scheduling solution
$75,000 - $250,000
Rapid implementation requirements
A consumer goods company facing tight deadlines used an ISV solution for product information management
$60,000 - $175,000
Mobile and extended user experiences
A field service organisation deployed an ISV mobile solution for technicians
$40,000 - $120,000
The Hidden Costs in Both Approaches
Beyond the obvious costs, both approaches carry hidden expenses that should factor into your decision:
Hidden Costs of Customisation
Knowledge Dependency Risks: Developer turnover can create critical knowledge gaps, with potential costs of $50,000 - $150,000 AUD to rebuild lost expertise.
Testing Burden: Each upgrade requires regression testing of customisations, adding $5,000 - $20,000 AUD per upgrade cycle in additional testing effort.
Architectural Drift: Custom code often doesn't evolve alongside Microsoft's architectural changes, eventually requiring significant refactoring that could cost 70-100% of original development.
Support Complexity: Support teams must understand custom code, resulting in 20-40% higher support costs compared to standard functionality.
Testing Burden: Each upgrade requires regression testing of customisations, adding $5,000 - $20,000 AUD per upgrade cycle in additional testing effort.
Architectural Drift: Custom code often doesn't evolve alongside Microsoft's architectural changes, eventually requiring significant refactoring that could cost 70-100% of original development.
Support Complexity: Support teams must understand custom code, resulting in 20-40% higher support costs compared to standard functionality.
Hidden Costs of ISV Solutions
Vendor Viability Risks: ISV business failure or acquisition can disrupt support, with emergency replacement potentially costing 150-200% of the original implementation.
Version Lag: ISVs typically trail Microsoft releases by 3-6 months, which may delay your ability to upgrade D365 and access new capabilities.
Integration Complexity: Multiple ISV solutions may have conflicting requirements, adding $5,000 - $15,000 AUD per upgrade cycle in additional integration testing.
Licensing Model Changes: ISVs may change pricing models, with unexpected licence cost increases of 15-30% common over a 5-year period.
Version Lag: ISVs typically trail Microsoft releases by 3-6 months, which may delay your ability to upgrade D365 and access new capabilities.
Integration Complexity: Multiple ISV solutions may have conflicting requirements, adding $5,000 - $15,000 AUD per upgrade cycle in additional integration testing.
Licensing Model Changes: ISVs may change pricing models, with unexpected licence cost increases of 15-30% common over a 5-year period.
Real-World Cost Comparisons
Let's examine how these decisions played out for three Australian organisations:
Manufacturing Company: Production Scheduling
Cost component
Custom development
ISV solution
Initial Investment
$215,000 development
$120,000 licenses + $85,000 implementation
Annual maintenance
$32,000
$24,000
Upgrade adaptation
$65,000 per major upgrade
Included in maintenance
5-Year TCO
$522,000
$325,000
Decision & Outcome: Chose ISV solution, successfully implemented with 90% functional fit. Saved approximately $197,000 over 5 years with higher reliability.
Retail Organisation: Loyalty Program
Cost component
Custom development
ISV solution
Initial Investment
$180,000 development
$95,000 licenses + $70,000 implementation + $85,000 customisation
Annual maintenance
$27,000
$28,500
Upgrade adaptation
$54,000 per major upgrade
Included in maintenance
5-Year TCO
$423,000
$392,500
Decision & Outcome: Despite similar TCO, chose custom development to maintain competitive differentiation. The unique loyalty algorithms delivered 22% higher customer retention than industry average, justifying the slightly higher cost.
Professional Services Firm: Resource Management
Cost component
Custom development
ISV solution
Initial Investment
$160,000 development
$75,000 licenses + $45,000 implementation
Annual maintenance
$24,000
$15,000
Upgrade adaptation
$48,000 per major upgrade
Included in maintenance
5-Year TCO
$376,000
$195,000
Decision & Outcome: Chose ISV solution, achieving 85% functional fit. The organisation adapted some processes to match ISV capabilities, saving approximately $181,000 over 5 years.
Evaluation Framework for ISV Solutions
When evaluating ISV solutions, apply this structured assessment framework:
1/ Vendor Stability Assessment
Rather than bullets, consider a simple scoring system for vendor assessment:
Criterion
Strong signal
Caution signal
Risk signal
Years in business
5+ years
2-5 years
<2 years
Customer base
50+ active customers
20-50 customers
<20 customers
Financial backing
Profitable or well-funded
Break-even operation
Unclear financials
Microsoft partnership
Gold partner
Silver partner
No formal partnership
2/ Technical Architecture Evaluation
The technical architecture determines long-term viability and upgrade compatibility:
Architecture approach
Advantage
Disadvantage
Extension-based
Lower upgrade costs, higher compatibility
Limited ability to modify core functionality
Overlay-based
Greater flexibility for deep customisation
Higher upgrade costs, potential compatibility issues
Hybrid approach
Balance of flexibility and compatibility
Requires careful architecture management
3/ Support Model Assessment
The technical architecture determines long-term viability and upgrade compatibility:
Support Element
Minimum Requirement
Premium Indicator
Geographic coverage
Email/phone in your timezone
Local Australian support
Response times
Next business day
4-hour response for critical issues
Issue resolution
Defined escalation process
Regular patches and hotfixes
Knowledge resources
Basic documentation
Training materials and user community
4/ Cost Structure Analysis
Understand the full pricing model to avoid surprises:
Pricing element
Questions to ask
Licence model
Per user or per organisation? Tiered pricing?
Implementation services
Fixed price or time & materials? What's included?
Ongoing maintenance
What's covered vs. billable? Guaranteed response times?
Future pricing
Contract protection against increases? Renewal terms?
5/ Reference Verification
When checking references, structure your inquiry around these key areas:
Verification area
Key questions
Implementation experience
Planned vs. actual timeline? Budget adherence?
Functionality delivery
What percentage of requirements were met? Workarounds needed?
Upgrade experience
Time required? Issues encountered? Vendor support quality?
Support responsiveness
Response times for critical issues? Knowledge of support staff?
Practical Recommendations: A Balanced Approach
Based on my experience guiding dozens of organisations through these decisions, here are my top recommendations:
1/ Adopt a "Buy Core, Build Edge" Philosophy
Focus customisation efforts on functionality that directly impacts competitive differentiation while leveraging ISV solutions for standardised processes.
This approach allows you to concentrate development resources on truly differentiating capabilities while leveraging the economies of scale that ISV solutions provide for standard business processes.
A distribution company applied this approach, implementing an ISV solution for warehouse management while developing custom functionality for their proprietary cross-docking process that provided competitive advantage.
This approach allows you to concentrate development resources on truly differentiating capabilities while leveraging the economies of scale that ISV solutions provide for standard business processes.
A distribution company applied this approach, implementing an ISV solution for warehouse management while developing custom functionality for their proprietary cross-docking process that provided competitive advantage.
2/ Establish a Customisation Governance Framework
Create a structured process for evaluating and approving customisation requests by implementing a decision matrix like this:
Customisation size
Approval required
Documentation required
Review process
Small (<$25,000
Department Manager
Business justification
Monthly review
Medium ($25K-$75K)
IT Director
Business case with TCO
Biweekly governance
Large (>$75,000)
Executive Committee
Full business case with alternatives
Dedicated review meeting
A manufacturing organisation implemented a governance framework requiring executive approval for any customisation exceeding $25,000, resulting in a 40% reduction in customisation scope without impacting business capabilities.
3/ Consider the Hybrid Approach
For some requirements, the optimal solution may combine ISV foundations with targeted customisations.
This approach leverages the strengths of both methods - the reliability and upgrade compatibility of ISV solutions with the competitive differentiation of custom functionality - when properly architected.
A retail client extended an ISV pricing solution with custom promotions functionality, achieving both the reliability of an established solution and the differentiation of their unique promotional strategy.
This approach leverages the strengths of both methods - the reliability and upgrade compatibility of ISV solutions with the competitive differentiation of custom functionality - when properly architected.
A retail client extended an ISV pricing solution with custom promotions functionality, achieving both the reliability of an established solution and the differentiation of their unique promotional strategy.
4/ Plan for Lifecycles, Not Just Implementation
Both custom development and ISV solutions require lifecycle management planning.
Create a visual roadmap that aligns your customisation and ISV implementation plans with Microsoft's release schedule, ensuring you have adequate resources allocated for testing and adaptation when major updates occur.
A professional services firm established a quarterly review process for both custom code and ISV solutions, proactively identifying and addressing potential issues before they impacted operations.
Create a visual roadmap that aligns your customisation and ISV implementation plans with Microsoft's release schedule, ensuring you have adequate resources allocated for testing and adaptation when major updates occur.
A professional services firm established a quarterly review process for both custom code and ISV solutions, proactively identifying and addressing potential issues before they impacted operations.
5/ Invest in Technical Architecture Expertise
Whether building or buying, architecture expertise is critical for long-term success.
Consider establishing an architecture review board with clearly defined evaluation criteria for both custom development and ISV solutions, ensuring technical decisions align with business strategy and long-term maintainability.
A financial services company hired a dedicated D365 architect who reviewed all ISV solutions and custom development proposals, preventing several potentially costly architectural missteps.
Consider establishing an architecture review board with clearly defined evaluation criteria for both custom development and ISV solutions, ensuring technical decisions align with business strategy and long-term maintainability.
A financial services company hired a dedicated D365 architect who reviewed all ISV solutions and custom development proposals, preventing several potentially costly architectural missteps.
Final Thoughts: Strategic Value vs. Cost Focus
The build-vs-buy decision ultimately comes down to a fundamental question: Are you optimising for cost or for strategic value?
Organisations that treat D365 F&O as primarily an efficiency tool tend to favour ISV solutions and minimal customisation. This approach typically delivers lower TCO but may limit your ability to differentiate through technology.
Conversely, organisations that view D365 F&O as a platform for competitive advantage are more willing to invest in custom development. This approach carries higher costs and risks but can deliver substantial strategic value when focused on truly differentiating capabilities.
In my experience, the most successful implementations strike a thoughtful balance - using ISV solutions for standardised processes while strategically investing in custom development where it creates genuine competitive advantage.
Organisations that treat D365 F&O as primarily an efficiency tool tend to favour ISV solutions and minimal customisation. This approach typically delivers lower TCO but may limit your ability to differentiate through technology.
Conversely, organisations that view D365 F&O as a platform for competitive advantage are more willing to invest in custom development. This approach carries higher costs and risks but can deliver substantial strategic value when focused on truly differentiating capabilities.
In my experience, the most successful implementations strike a thoughtful balance - using ISV solutions for standardised processes while strategically investing in custom development where it creates genuine competitive advantage.