A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can't be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier's costs plus 10% markup on total costs. This arrangement is known as...?
Answer(s): D
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract's full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:1. Cost-plus award fee contracts allow the contractor to be awarded a fee usually for good per- formance.2. Cost-plus fixed-fee contracts cover both direct and indirect costs, in addition to a fixed fee.3. Cost-plus incentive fee contracts happen when the contractor is given a fee if his or her perfor- mance meets or exceeds expectations.4. Cost-plus percent-of-cost contracts allow the amount of reimbursement to rise if the contrac-tor's costs rise.In the scenario, the procurement manager suggests a pricing structure that covers supplier's costs and adds 10% markup. This is cost-plus fixed-percentage.
- Cost-Plus Contract Definition (investopedia.com)- CIPS study guide page 30-36LO 1, AC 1.2
Which of the following is an useful tool for value engineering?
Value Engineering (VE) is concerned with new products. It is applied during product development. The focus is on reducing costs, improving function or both, by way of teamwork-based product evaluation and analysis. This takes place before any capital is invested in tooling, plant or equipment. This is very significant, because according to many reports, up to 80% of a product's costs (throughout the rest of its life-cycle), are locked in at the design development stage. This is under- standable when you consider the design of any product determines many factors, such as tooling, plant and equipment, labour and skills, training costs, materials, shipping, installation, maintenance, as well as decommissioning and recycle costs.The Kano model is a theory for product development and customer satisfaction developed in the 1980s by Professor Noriaki Kano, which classifies customer preferences into five categories. Both Kano model and Value Engineering aims at optimising new product, so they can be combined to- gether. CIPS L4M2 study guide consider Kano model is a tool of Value EngineeringExample of Kano model (source: Wikipedia)
CIPS study guide page 171-172LO 3, AC 3.4
Company A sells a product for $100. The total unit variable costs are $60. Fixed costs as in its ac-count are $20,000. How many products does the company have to sell to achieve break-even point?
Break even point = Fixed costs/(Price-variable cost). In this case, break even point = 20,000/(100-60)= 500
CIPS study guide page 28-29LO 1, AC 1.2
Which of the following is the purpose of benchmarking?
Answer(s): A
According to US Department of the Navy, Benchmarking is a strategic and analytic process of continuously measuring an organisation's products, services, and practices against a recognised leader in the studied area.Successful benchmarking will help you:- Find who does the process best and close the gap- Recognise the leading organisations in a process or activity- Create performance standards derived from an analysis of the best in business- Ensure that comparisons are relevant- Measure your performance, your processes, and your strategies against best in business- Measure business processes- Assess performance over time- Accelerate continuous process improvement (CPI)- Establish more credible goals for CPI- Establish actionable objectives- Discover and clarify new goals- Establish customer expectations of business standards set by the best suppliers in industry- Help your organisation achieve breakthrough improvements- Create a sense of urgency for change- Increase customer satisfaction- Become direction setting- Provide a positive, proactive structured processBenchmarking does not:- Copy the other's processes- Steal other business confidentiality- Stop. Benchmarking is a continuous process.
- CIPS study guide page 49-51- The Department of the Navy Benchmarking HandbookLO 1, AC 1.3
Which of the following is the disadvantage of embedding standards in a specification?
Answer(s): C
"Standards are often produced by professional bodies (maybe national or international bodies). Standards tend to be stable for a period of time, therefore, they are likely to be static and discourage innovation."
CIPS L4M3 study guide page 125LO 3, AC 3.1
Post your Comments and Discuss CIPS L4M2 exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the L4M2 content, but please register or login to continue.