©JASONMcCONNELL 2025 ALL RIGHTS RESERVED
CIPS L6M5 - Strategic Programme
Leadership LO2. Exam Questions and
Answers 100% Pass
Fixed pricing - Answer✔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) - Answer✔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 - Answer✔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
1
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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 - Answer✔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 - Answer✔Contracts with suppliers can influence a project's risk
level. A fixed-price contract can minimise or remove intolerable risks.
Penetration pricing - Answer✔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.
2
, ©JASONMcCONNELL 2025 ALL RIGHTS RESERVED
Premium Pricing - Answer✔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 - Answer✔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 - Answer✔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 - Answer✔associated directly with creating & delivering a
product e.g. Material, Labour Manufacturing Supplies
How costs vary? - Indirect costs - Answer✔not directly associated; may be shared with other
departments e.g. Admin, IT, Rent, Utilities, General Office Expenses
How costs vary? - Fixed costs - Answer✔remain the same irrespective of volume of output e.g.
Factory, rent
How costs vary? - Variable costs - Answer✔costs vary depending of amount of output e.g.
overtime worked
3
, ©JASONMcCONNELL 2025 ALL RIGHTS RESERVED
Variance analysis - Answer✔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 - Answer✔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 - Answer✔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 - Answer✔Favourable variance is not always a benefit - certain aspects
like marketing could have underutilised their budget.
How variance analysis works - Answer✔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 - Answer✔process aimed at reviewing product design and systems to
determine a final production process.
4
CIPS L6M5 - Strategic Programme
Leadership LO2. Exam Questions and
Answers 100% Pass
Fixed pricing - Answer✔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) - Answer✔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 - Answer✔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
1
, ©JASONMcCONNELL 2025 ALL RIGHTS RESERVED
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 - Answer✔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 - Answer✔Contracts with suppliers can influence a project's risk
level. A fixed-price contract can minimise or remove intolerable risks.
Penetration pricing - Answer✔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.
2
, ©JASONMcCONNELL 2025 ALL RIGHTS RESERVED
Premium Pricing - Answer✔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 - Answer✔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 - Answer✔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 - Answer✔associated directly with creating & delivering a
product e.g. Material, Labour Manufacturing Supplies
How costs vary? - Indirect costs - Answer✔not directly associated; may be shared with other
departments e.g. Admin, IT, Rent, Utilities, General Office Expenses
How costs vary? - Fixed costs - Answer✔remain the same irrespective of volume of output e.g.
Factory, rent
How costs vary? - Variable costs - Answer✔costs vary depending of amount of output e.g.
overtime worked
3
, ©JASONMcCONNELL 2025 ALL RIGHTS RESERVED
Variance analysis - Answer✔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 - Answer✔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 - Answer✔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 - Answer✔Favourable variance is not always a benefit - certain aspects
like marketing could have underutilised their budget.
How variance analysis works - Answer✔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 - Answer✔process aimed at reviewing product design and systems to
determine a final production process.
4
