CIPS L6M5 - STRATEGIC PROGRAMME LEADERSHIP
LO2
Fixed pricing - Answers - Fixed pricing is a strategy in which a supplier estimates their
cost and fees and uses that price to bid for the contract.
Variable pricing (cost plus pricing) - Answers - Variable pricing (cost plus pricing) is
when a supplier buys at the market price and sells at this plus margin.
Buyers cost may in/ or decrease
This means that market fluctuations are therefore passed onto the buyer, limiting the
risk to the supplier.
Fixed Price Advantages - Answers - Advantages
· Fixed pricing makes a forecast and profit estimates more straightforward and accurate
· Simplifies the bidding process
· Less likely to lead to tensions between both parties
Disadvantages
· Predictability comes at price: supplier cost will include a contingency and are often
higher as a result
· The buyer can not benefit from decrease costs
· If the prices of the goods rises dramatically, it may affect the suppliers ability to
continue their contractual obligations
Variable pricing (cost plus pricing) Advantages - Answers - Variable pricing cost plus
pricing means that market fluctuations are therefore passed onto the buyer, limiting the
risk to the supplier.
Advantages
· Prices may go down
· The buyer is not subject to large contingency fees
Disadvantages
· Prices may go up
· Variable costs more difficult to predict
· Supplier has little incentive to keep costs down
Fixed Price Risk Mitigation - Answers - Contracts with suppliers can influence a project's
risk level. A fixed-price contract can minimise or remove intolerable risks.
,Penetration pricing - Answers - Penetration pricing is a marketing strategy used by
businesses to attract customers to a new product or service by offering a lower price
during its initial offering.
Premium Pricing - Answers - a competitor-based pricing method by which the firm
deliberately prices a product above the prices set for competing products to capture
those consumers who always shop for the best or for whom price does not matter -
reputation is key
Selecting a pricing strategy - Answers - Higher risk projects better suited to... Variable
pricing (A.K.A cost plus pricing)
Lower risk and value projects better suited to... Fixed Pricing
Setting profit goals - Answers - the following need to be considered:-
· Fixed costs
· Variable costs
· Owner's income and shareholder provision
· Return on borrowed capital
· Return of risk
· Return for future growth
How costs vary? - Direct costs - Answers - associated directly with creating & delivering
a product e.g. Material, Labour Manufacturing Supplies
How costs vary? - Indirect costs - Answers - not directly associated; may be shared with
other departments e.g. Admin, IT, Rent, Utilities, General Office Expenses
How costs vary? - Fixed costs - Answers - remain the same irrespective of volume of
output e.g. Factory, rent
How costs vary? - Variable costs - Answers - costs vary depending of amount of output
e.g. overtime worked
Variance analysis - Answers - The identification of differences between planned and
actual results and the analysis of causes of these differences. It is used with the aim of
minimising inefficiencies.
Variance analysis example - Answers - Spending of a particular material may go over
the budgeted spend because of changes in pricing or quants.
The analysis identifies what type of variance has taken place
, Variance analysis - Un/Favourable - Answers - Variance analysis identifies the
following:-
· Favourable variance - This is the variance identified when the actual results are better
than expected.
· Unfavourable or adverse variance - This is the variance identified when the actual
results are worse than the expected results.
Favourable variances - Answers - Favourable variance is not always a benefit - certain
aspects like marketing could have underutilised their budget.
How variance analysis works - Answers - Variance analysis is defined as measuring
actual results compared to the original budget (known as a static budget)
however, can be used for flexed budget comparison (can provide more information at
various points throughout the programme).
Value engineering - Answers - process aimed at reviewing product design and systems
to determine a final production process.
Elements of value engineering - Answers - 6 elements of value engineering are as
follows:-
1. Selection - product, production process, materials, procedures and systems
2. Information - Strategic leader needs to collate facts.
3. Analysis - comes in two basic forms:
a. Cost analysis - identifies and breaks down the constituent costs of products
b. Functional analysis - investigates the function performed by the subject of the
analysis
4. Teamwork - utilising the skill and expertise of the entire team.
5. Procedures - designed to save time and concentrate skill and knowledge resources
6. Attitudes - element is aimed at removing unnecessary costs resulting from negative
attitudes and fears i
Value analysis - Answers - examining items of fixed costs and products that are already
in existence.
VE Advantages - Answers - Strategic tool that is straightforward - it can increase value
and bring down costs.
LO2
Fixed pricing - Answers - Fixed pricing is a strategy in which a supplier estimates their
cost and fees and uses that price to bid for the contract.
Variable pricing (cost plus pricing) - Answers - Variable pricing (cost plus pricing) is
when a supplier buys at the market price and sells at this plus margin.
Buyers cost may in/ or decrease
This means that market fluctuations are therefore passed onto the buyer, limiting the
risk to the supplier.
Fixed Price Advantages - Answers - Advantages
· Fixed pricing makes a forecast and profit estimates more straightforward and accurate
· Simplifies the bidding process
· Less likely to lead to tensions between both parties
Disadvantages
· Predictability comes at price: supplier cost will include a contingency and are often
higher as a result
· The buyer can not benefit from decrease costs
· If the prices of the goods rises dramatically, it may affect the suppliers ability to
continue their contractual obligations
Variable pricing (cost plus pricing) Advantages - Answers - Variable pricing cost plus
pricing means that market fluctuations are therefore passed onto the buyer, limiting the
risk to the supplier.
Advantages
· Prices may go down
· The buyer is not subject to large contingency fees
Disadvantages
· Prices may go up
· Variable costs more difficult to predict
· Supplier has little incentive to keep costs down
Fixed Price Risk Mitigation - Answers - Contracts with suppliers can influence a project's
risk level. A fixed-price contract can minimise or remove intolerable risks.
,Penetration pricing - Answers - Penetration pricing is a marketing strategy used by
businesses to attract customers to a new product or service by offering a lower price
during its initial offering.
Premium Pricing - Answers - a competitor-based pricing method by which the firm
deliberately prices a product above the prices set for competing products to capture
those consumers who always shop for the best or for whom price does not matter -
reputation is key
Selecting a pricing strategy - Answers - Higher risk projects better suited to... Variable
pricing (A.K.A cost plus pricing)
Lower risk and value projects better suited to... Fixed Pricing
Setting profit goals - Answers - the following need to be considered:-
· Fixed costs
· Variable costs
· Owner's income and shareholder provision
· Return on borrowed capital
· Return of risk
· Return for future growth
How costs vary? - Direct costs - Answers - associated directly with creating & delivering
a product e.g. Material, Labour Manufacturing Supplies
How costs vary? - Indirect costs - Answers - not directly associated; may be shared with
other departments e.g. Admin, IT, Rent, Utilities, General Office Expenses
How costs vary? - Fixed costs - Answers - remain the same irrespective of volume of
output e.g. Factory, rent
How costs vary? - Variable costs - Answers - costs vary depending of amount of output
e.g. overtime worked
Variance analysis - Answers - The identification of differences between planned and
actual results and the analysis of causes of these differences. It is used with the aim of
minimising inefficiencies.
Variance analysis example - Answers - Spending of a particular material may go over
the budgeted spend because of changes in pricing or quants.
The analysis identifies what type of variance has taken place
, Variance analysis - Un/Favourable - Answers - Variance analysis identifies the
following:-
· Favourable variance - This is the variance identified when the actual results are better
than expected.
· Unfavourable or adverse variance - This is the variance identified when the actual
results are worse than the expected results.
Favourable variances - Answers - Favourable variance is not always a benefit - certain
aspects like marketing could have underutilised their budget.
How variance analysis works - Answers - Variance analysis is defined as measuring
actual results compared to the original budget (known as a static budget)
however, can be used for flexed budget comparison (can provide more information at
various points throughout the programme).
Value engineering - Answers - process aimed at reviewing product design and systems
to determine a final production process.
Elements of value engineering - Answers - 6 elements of value engineering are as
follows:-
1. Selection - product, production process, materials, procedures and systems
2. Information - Strategic leader needs to collate facts.
3. Analysis - comes in two basic forms:
a. Cost analysis - identifies and breaks down the constituent costs of products
b. Functional analysis - investigates the function performed by the subject of the
analysis
4. Teamwork - utilising the skill and expertise of the entire team.
5. Procedures - designed to save time and concentrate skill and knowledge resources
6. Attitudes - element is aimed at removing unnecessary costs resulting from negative
attitudes and fears i
Value analysis - Answers - examining items of fixed costs and products that are already
in existence.
VE Advantages - Answers - Strategic tool that is straightforward - it can increase value
and bring down costs.
