(4, 1) – Programmes & Projects: Cost Management, Financial and Management Information Flashcards

1
Q

What is the price, provided by the supplier, made up of?

A

Costs + Profit = Price

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2
Q

What is a CPA?

A

Contract Price Adjustment clauses can be used with fixed prices or rates but with the provision of price adjustment given certain events. It is used to combat volatility of market conditions.

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3
Q

What are the main uses of budgeting in projects?

A

Budgets enable planned costs to be schedule properly against timescales
Budgets can be used to communicate and maintain accountability for costs
Control can be exercised over project expenditure

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4
Q

What is value engineering? What are the 6 stages required to undertake it?

A

VE is a method of reducing costs throughout the supply chain while ensuring quality is maintained.

  1. Information Phase – review design / process to identify cost drivers
  2. Speculation Phase – generation of ideas to create options for alternatives
  3. Evaluation Phase – a critical appraisal of alternative solutions
  4. Development Phase – best ideas are developed to consider feasibility / financial analysis
  5. Presentation Phase – conclusions of the study are documented and recommendations made
  6. Implementation – Proposals which were agreed are implemented
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5
Q

What is meant by Vertical alliance or Horizontal alliance?

A

Buying consortiums can be formed to reduce costs.
Vertical – alliance from the same industry sector collaborate to buy items specific to sector
Horizontal – alliance from different industries buy similar items

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6
Q

What are the benefits to purchasers of buying alliances?

A
  • Increased volumes create greater leverage with suppliers
  • Price savings due to increased volumes
  • Lower acquisition costs of materials, goods and services
  • Staff costs may also reduce
  • May be opportunities to share market intelligence / product knowledge
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7
Q

What is open book costing?

A

Open book costing is a method of costing in which the supplier shares their complete cost basis to the buyer. All costs are broken down so the buyer can understand the total costs.

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8
Q

What is progress monitoring?

A

Budgets must be monitored regularly to ensure the initial cost estimates are correct and there won’t be an overspend. This is important as budget may not be available. Key elements to be monitored include time, cost and quality.

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9
Q

What are the three main types of control mechanisms?

A
  • Cybernetic control – feedback control involves a loop, the PM use progress reporting to track progress. Deviations from plan are identified and decision taken to corrective actions
  • Go / No-Go control – checks are required at key stages to ascertain if agreed criteria are met, if they have then the project can continue to the next stage
  • Post control review – review takes place at the end of activities with view to improving future performance
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10
Q

What are causes of variations in projects?

A
  1. Change of schedule (additional resources required)
  2. Financial problems (reduced budgets)
  3. Contractor problems (loss of resource, capacity problems etc.)
  4. Project issues (poorly constructed objectives, conflict, weak stakeholder engagement)
  5. Lowest price procurement (where supplier bids low and tries to recover costs through extra charges)
  6. Scope creep (changes in spec)
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11
Q

What is an early warning notice?

A

A clause which requires both parties to engage the other as soon as they become aware of any likely variation to help limit the impacts.

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12
Q

What methods are there for resolving the impact of variations between two contracting parties?

A

Negotiation
Mediation
Arbitration
Litigation

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