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CA1 - Professionalism and Environment > Contract Design Onwards > Flashcards

Contract Design Onwards Flashcards

1
Q

What is the Contract Design Acoronymn?

A

AMPLE DIRECT FACTORS

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2
Q

What are the factors in the first word of the Contract Design acronymn?

A 
AMPLE
Admin systems
Marketability
Profitibility 
Level and form of benefits
Early leaver benefits
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3
Q

What are the factors in the 2nd word of the Contract Design acronymn?

A 
DIRECT
Discretionary benefits
Interests and needs of customers
Risk appetite
Expenses vs charges
Competition
Terms and conditions of contract
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4
Q

What are the factors in the 3rd word of the Contract Design acronymn?

A 
FACTORS
Financing (capital requirements)
Accounting implications
Consistency with other products
Timing of contributions or premiums
Options and guarantees
Regulatory requirements
Subsidies (cross)
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5
Q

What costs do product providers need to think about?

A

RAPID COST

Renewal admin
Asset managements
Profits
Initial admin
Design of contract

Commission
Overheads
Sales/advertising
Terminal e.g. paying benefits

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6
Q

What are the characteristics of a well run project?

A

PROJECT CRAMPS

Planning (full)
Risk analysis (thorough)
Objectives (clear and reflect customer needs)
Judge (monitor) development
Excellent intercommunication
Conflict management (leads to development)
Thorough testing at all stages

Critical path analysis
Relationships with external suppliers (challenging and stable)
Appropriate pace, so deadlines reach on time
Milestones review schedule
Performance and quality standards are set and measured
Supportive environment

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7
Q

What are the contents of a written strategy document?

A

PROSE

Policies
Roles and responsibilities
Objectives
Schedule
Expected cost
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8
Q

What criteria would be used in an initial appraisal?

A

SPURS

Synergies with other projects
Political constraints
Upside potential
Results (financial side)
Scarce resources
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9
Q

What tools do you use to identify risks?

A

DR RUB

Desktop analysis
Risk analysis at high level
Risk register/matrix
Upside as well as downside risks identified
Brainstorming
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10
Q

What types of risk to the project are there? (identify causes of risk)?

A

PNE FC PB

Political (opposition from 3rd party, sponsors)
Natural (storms/volcanoes)
Economic (interest rate, curr, infln)

Financial (refinancing issues, incorrect cashflow estimates)
Crime (fraud)

Project (poor design, over-budget)
Business (competition, loss of key personnel, safety)

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11
Q

What are the fat risk mitigation techniques?

A

FAT SIR

Further research
Avoid
Transfer

Share
Insure
Reduce

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12
Q

How do you evaluate risk mitigation options?

A

OFFER

Overall impact on distn of NPV's
Feasibility and cost
Further mitigation required in response to secondary risks
Effect on frequency/severity/correlation
Resulting secondary risks
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13
Q

What are the contents of an investment submission? (submission for whether to take on project)

A

FIRM PEN

Financial results (ENPV, distn of NPV’s)
Identifying and analysing key residual risks
Recommendation
Mitigation strategy (best one)

Proposed method of financing it
Effect on investors
Non-Monetary issues, e.g. synergies, political risks

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14
Q

What more do you consider beyond the investment submission?

A

HO-LAND

Hunch
Overall credibility

Last minute considerations
Allowance for approximations and bias
Nowledge not in possession of those preparing the submission
Doubts over feasibility

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15
Q

What are the types of policies considered in the strategy documents

A

FLIRTC

Financial
Legal
IT
Risk management
Tech
Communications
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16
Q

What are the 4 things that should DEFINITELY be included in strategy document?

A

AIRA

Aims
Issues necessary for implementing project
Risk areas effecting viability
All strategies for dealing with risk areas

17
Q

What is the definition of a capital project?

A

Initial expenditure, with future income and running costs (not necessarily a physical asset constructed)

18
Q

Explain what WACC is?

A

The cost of raising incremental capital to carry out a project, the rate which a project must earn so shareholder are no better/worse off

19
Q

Explain the formula for WACC

A

The weighted average cost of raising capital, with weights set to the optimal proportions of bonholders (debt) and shareholders (equity)

20
Q

What is the WACC formula?

A

WACC=MVdebt/(MVdebt+MVeq) * debtholder req return + MVeq/obvious * eq holder req return

21
Q

What is the debtholder required return?

A

Real return on IL bonds plus margin for creditworthiness * (1-corp tax)

22
Q

What is the equity holder required return?

A

Real return on IL bonds + eq risk prem

23
Q

The WACC is a real discount rate, what does that mean?

A

It should be applied to cashfolows in todays values

24
Q

What do you do to the WACC if project is higher risk than normal?

A

Increase as higher systemic risk, look at other companies, or take arbitrary increase

25
Q

What testing should you do with WACC

A

Sensitivity on different discount rates

26
Q

Why shouldn’t you have a really high discount rate on WACC

A

Because that would mean lower importance on late cashflows so may accept a risky project (gets risky later on)

27
Q

What are the characteristics of a successful team?

A

CLEF ED

Commited to success of project
Leaders are good
Excellent communicator
Friendly but not afraid of each other
Experience is varied
Deadlines are met
28
Q

What are the characteristics of a successful leader?

A

MODES

Motivates
Organisation of resources is good
Decisive action taker
Establish directions
Strong/experiences to drive team forward
29
Q

What are the NPV advantages?

A

MTR

Measure of expected added value
Time value of money allowed for
Riskiness (Disc rate) allowed for

30
Q

What are the IRR advantages?

A

CUC

Comparison is possible because single number
Understandable
Comparison of CoC to rate of return possible

31
Q

What are the Payback Period advantages?

A

SP

Simple calculation and communication
Periods that are critical are useful, if cashflows are critical to company

32
Q

What’re the NPV disadvantage?

A

LP

Length of project not taken into account
Timing of profits not taken into account

33
Q

What are the IRR disadvantages?

A

MSL

Multiple solutions or none are possible
Size of project not taken into account
Length of time of project not taken into account

34
Q

What are the Payback Period disadvantages?

A

CT

Cashflows after payback period not accounted for
Time value of money not accounted for (DPP)

CA1 - Professionalism and Environment (5 decks)

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