How can I decide whether to perform a service in-house or outsource it to an outside vendor?

Go into the nitty-gritty of a cost vs. benefit analysis first, and match the outcome against your medium and long term strategy. I firmly believe that at least90% of all services would benefit from outsourcing as a medium and long term solution if you find a solid and reliable partner for it.

One can precisely say that it depends on out what  service is to be outsourced.Strength and weakness of the inhouse team ,by having a look into the quality and quantity of the resource.

And finally the cost factor and long term strategy of the company 

Firstly, clearly outline the business needs and priorities pertaining to the services in question. Secondly, assess the maturity of in-house service using any industry standard framework like COBIT or similar. Thirdly, a cost benefit analysis to determine the best course of action in the light of previous two steps.

A Strategic and Financial analysis needs to be made first between the two scenarios (make it or buy it). The Analysis must pertain the following:

- What is the objective of having this product? How will it affect my final product  (package/service) and consequently how important is it to my target market?

- How important is its quality/specs to my target market?

- Do I have the needed internal resources (manpower, equipment, expertise) to develop it in house? what would be the additional variable or depreciation costs if I do have the resources, and what would be the additional costs if I needed to procure the resources needed to make it in-house?

- Buying the product instead of making it in house implicates the supplier to be the expert. 

- Cost analysis and comparison between the two scenarios

- Revenue forecast, and pricing analysis according to target profit margin. Then Compare costs and ROI in both scenarios including quaity, business and Financial objectives considerations.

1- Analyze the service

2- Inquire about a similar task if it had previously been accomplished in-house or not

3- if yes, assess if the current team can perform it again, if not, move to No.4

4- Evaluate the technical pros. and cons. of developing and implementing the service internally, if the feedback is to negative then move to No.5

5- Contact a vendor to accomplish the task if it is crucial to be done

It depends on a specialty that a company can provide and a vendor qualified in.    

Looking at the posts of others, I have nothing more to add

it depends on the total cost , without downgrading the service itself -- if we can preform it even at break even cost with a superior service then in house is advised, if its too costly and someone else can preform it without lowering service then we can outsource

I will have to agree with the many professional people who have already stated doing a basic cost benefit analysis.  The only thing I would add is to spend some real time evaluating the status of the client and his/her potential for sales growth.  If the potential is good, I'd prefer to keep everything in house.  That way I can control the entire sales cycle and ensure that the customer will be extremely happy (and willing to increase his business with me).    

I will prefer to keep in-house service and it is easy to manage / control/ monitor  ( depending upon the policy of country for labour law). 

I think its important to focus on the CORE business and if something is not the CORE business, that COULD be OUTSOURCED.  However a Cost Benefit Analysis (CBA) shall be done to understand the advantages in the short and long term.  While doing a CBA we should carefully consider the overall business objectives, internal skills, infrastructure and its ability to scale up to the new requirements, risks of such initiatives, cost of investments, lead time to address such issues etc.  Sometime, we may want to transfer the risk to an outsider that could also be a trigger to Outsource.