Quiz CIPS Defining Business Needs

A firm also has to look at a myriad of other factors before setting its prices. Those factors include the
offering’s costs, the demand, the customers whose needs it is designed to meet, the external
environment—such as the competition, the economy, and government regulations—and other
aspects of the marketing mix, such as the nature of the offering, the current stage of its product life
cycle, and its promotion and distribution. If a company plans to sell its products or services in
international markets, research on the factors for each market must be analyzed before setting
prices. Organizations must understand buyers, competitors, the economic conditions, and political
regulations in other markets before they can compete successfully.
[...]
The costs of the product—its inputs—including the amount spent on product development, testing,
and packaging required have to be taken into account when a pricing decision is made. So do the
costs related to promotion and distribution. For example, when a new offering is launched, its
promotion costs can be very high because people need to be made aware that it exists. Thus, the
offering’s stage in the product life cycle can affect its price.
Reference:
- CIPS study guide page 90-91
- 15.2 Factors That Affect Pricing Decisions – Principles of Marketing (umn.edu)
LO 2, AC 2.2

Before a project commences (either capital purchase or switching to a new supplier), a business case
should be developed. The business case outlines the why, what, how, and who necessary to decide if
it is worthwhile continuing a project.
Basically, the following criteria can be applied to the assessment of a business case:
1. Objectives
This part describes why you are doing the project. The business objective answers the following
questions:
- What is your goal?
- What is needed to overcome the problem?
- How will the project support the business strategy?
2. Option identification and selection
Identify the potential solutions to the problem and describe them in enough detail for the reader to
understand.
For instance, if the business case and proposed solution makes use of technology, make sure to
explain how the technology is used and define the terms used in a glossary. Since most problems
have multiple solutions an option appraisal is often needed. This will explore the potential solutions
and recommend the best option.
When writing the initial business case the option appraisal is likely to contain a long list of options
and will cover many possibilities. As the project continues a number of options will be rejected. The
final business case may contain three to five options ― the short list ― that includes a do nothing or
benchmark option.
3. Benefits and limitations
The benefits and limitations section describes the financial and non-financial benefits in turn. The
purpose is to explain why you need a project.
For instance, to:
- Improve quality
- Save costs through efficiencies
- Reduce working capital
- Generate revenue
- Remain competitive
- Improve customer service
- Align to corporate strategy
The business case should also include any limitations since these present potential risk to the pro-
ject.
4. Risk management
The risk assessment summarizes the significant project risks and opportunities and how they are
managed. The risks included should cover those that could arise from your project or the organiza-
tion’s ability to deliver change.
This section answers the following questions:
- What risks are involved?
- What are the consequences of a risk happening?
- What opportunities may emerge?
- What plans are in place to deal with the risks?
- Every project should include a risk log.
When writing a business case, make sure this is included as it explains how risk and opportunity are
managed.
5. Implementation plan
The outline plan provides a summary of the main activities and overall timescale ― project schedule
— for the project.
Ideally, the project should be divided into stages with key decisions preceding each stage. Use this
section to answer the following questions:
- What is required?
- How is it done?
- Who does what?
- When will things happen?
This outline plan lists the major deliverables and includes a brief project description plus
accountabilities for each activity.
In the scenario, the CPO has set out objective, generated options, cost and benefit of each option
and implementation plan. In order to make the business case more compelling, he should reinforce it
with risk management.
Reference: CIPS study guide page 41-48
LO 1, AC 1.3

Statement of Work (SoW) is the document that captures and defines all aspects of your project. You’ll
note the activities, deliverables and the timetable for the project. It’s an extremely detailed
document as it will lay the groundwork for the project plan.
Project Initial Document is an important document and should precede any specification writing
project. It sets out the scope of the project and it is the team's mandate from senior management
Work instructions are also called work guides, Standard Operating Procedures (SOPs), job aids or user
manuals, depending on the situation. In any case, the purpose of work instructions is to clearly
explain how a particular work task is performed.
Framework agreements are arrangements between one or more buyers and one or more suppliers
that provide the terms governing contracts to be established for a certain period of time, in
particular with regard to price and, where necessary, the quantity envisaged.
Reference: CIPS study guide page 124
LO 3, AC 3.1

The specification that is produced too detailed will incur unnecessary cost because it does not allow
suppliers to use their expertise in finding the most efficient way to produce it.
'No, because higher requirements in specification, the greater bargaining power of buying organi-
sation': more detailed specifications could tighten the supplier base and potentially leave buying
organisation with fewer potential supplier. This may reduce buyer's bargaining power in negotia-tion.
'Yes, because higher requirements will help buying organisation find the best supplier': in some
circumstances, higher requirements will lead to smaller supplier base. In the worst scenario, there is
no supplier who has capability to carry out those requirements
'Yes, because optimising the specification is the only method to achieve value for money': There are
other methods to achieve cost saving and value for money, inter alia, volume concentration,
relationship restructuring, etc.
Reference: CIPS study guide page 118-119
LO 3, AC 3.1

The instrument plays a crucial role in steel manufacturing because it presents in the majority of
products, in which case lacking this instrument would have significant impact on the organisation's
output (production lines stop or damaging other machine). Otherwise, the risk of supply is high
because there is limitation in supply. Therefore, it is considered as a strategic item in term of Kraljic's
portfolio matrix. Procurement manager should form partnership with suppliers to maximise the
value.
The following graph illustrates Kraljic's portfolio matrix:

Tap the image to zoom
Reference: CIPS Study guide page 84.
LO 2, AC 2.1

Despite of its importance, cost analysis is often a daunting task for procurement professionals. In
order to analyse supplier's costs effectively, procurement may need the input from other depart-
ments. Normally, technical (or engineering) department may help them to identify the direct costs of
the product/service (how much material is required to make the product, or how many people are
needed to perform the job, etc), while finance (or accounting) department may have ideas on the
overheads of the supplier.
In this scenario, engineering department may provide insights on the components needed and the
tasks to perform. Similarly, finance may know how much supplier pays for the overheads.
On the other hand, while commercial agency and suppliers are external stakeholders, Sales and
marketing is unlikely to provide valuable information in this case.
Reference: CIPS study guide page 102
LO 2, AC 2.3

The difference between the standard cost of direct materials specified for production and the actual
cost of direct materials used in production is known as Direct Material Cost Variance. Material Cost
Variance gives an idea of how much more or less cost has been incurred when compared with the
standard cost. Thus, Variance Analysis is an important tool to keep a tab on the deviations from the
standard set by a company.
Material Cost Variance can be due to less purchase price being paid than the standard or because of
change in the quantity of material used. Thus, Material Cost Variance is made up of two components
namely; Material Price Variance and Material Usage Variance.
Among the 4 options:
- 'The buyer updates purchase-to-pay system to track payment and delivery': The use of e-
procurement system can increase the productivity and create labour cost variance, not material cost
variance.
- 'An unprocessed goods received note is missing': If a goods received note is missing, the buyer
won't pay for that batch, which create quantity variance.
- 'The employees must work overtime to catch up with the customers' orders': Overtime salary can
cause labour variance, not material cost variance.
- 'The purchase is made in emergency': Normally, the price in emergency situation is higher than
usual. This can cause price variance.
Reference:
- CIPS study guide page 57-59
- Material Variance | Cost, Price, Usage Variance Formula, Example - eFM (efinancemanage-
ment.com)
LO 1, AC 1.4

RAQSCI stands for Regulatory, Availability, Quality, Service, Cost, Innovation.
LO 1, AC 1.1

ISO 9001:2015 specifies requirements for a quality management system.
ISO 14001:2015 specifies the requirements for an environmental management system that an or-
ganization can use to enhance its environmental performance. ISO 14001:2015 is intended for use by
an organization seeking to manage its environmental responsibilities in a systematic manner that
contributes to the environmental pillar of sustainability.
ISO 22000:2018 specifies food safety management systems — Requirements for any organization in
the food chain
ISO 27001 provides requirements for an information security management system.
LO 3, AC 3.1

This question mentions about specification in construction. In this sector, specifications are written
documents that describe the materials and workmanship required for a development. They do not
include cost, quantity or drawn information and need to be read alongside other contract
documentation such as quantities, schedules and drawings.
Specifications vary considerably depending on the stage to which the design has been developed,
ranging from performance (open) specifications that require further development by a contractor or
supplier, to prescriptive (closed) specifications for which the design is already complete when the
project is tendered.
Prescriptive specifications typically contain detailed descriptions of the following components:
- General requirements relating to regulations and standards.
- The type of products and materials required.
- The execution and installation methods required.
Prescriptive specifications give the client much more certainty about the end product when making
investment decisions (such as when they appoint the contractor), and place a greater burden on the
designer to ensure proper installation rather than the contractor.
Reference:
- CIPS study guide page 116-120
- Prescriptive specification - Designing Buildings Wiki
LO 3, AC 3.1