Free CIPS L4M5 Practice Exam with Questions & Answers | Set: 4

Developing specific negotiation strategies in areas where risk or spend is high involves analysing a wide range of objectives and variables within the context of the organisation's business requirements. The first stage in any negotiation preparation is to define your overall objectives which may be related to a single variable such as price in the case of a standardised requirement, or many variables in the case of capital equipment. Your negotiating strategies and tactics will all be focused on achieving overall objectives.

Afixed price agreementprovides the buyer withcost predictability. Once the price is agreed upon, the buyer is insulated from any cost increases on the supplier's side. The supplier bears the risk of fluctuating input prices, which simplifies cost control and contract administration for the buyer.

“With a fixed price arrangement, the buyer is protected from future price increases and does not need to monitor the supplier’s ongoing costs. This is particularly useful for budgeting and forecasting.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.1 - Fixed Price Agreements)

Planning and preparation involve analysing bargaining power, understanding the counterpart’s needs, and defining the constituents (parties involved). Questioning and concessions come later during bargaining. Narrowing solutions occurs during closure. Proper planning ensures negotiators enter with clear objectives, strategies, and knowledge, reducing surprises. CIPS highlights preparation as the most critical determinant of negotiation success, aligning with the saying: “Failing to prepare is preparing to fail.”

A negotiation performance review should focus on measuring outcomes against objectives, lessons learned, and evaluation of negotiator effectiveness. This ensures continual improvement and supports organisational learning. Pricing structures and alternative suppliers may have been reviewed earlier, but are not part of post-performance reflection. Travel expenses are irrelevant to negotiation learning. By focusing on objectives, learning, and performance, organisations embed best practice and prepare stronger strategies for future negotiations.

Commercial negotiations commonly take place during Contract Management and Improvement (1) and Contract Award and Implementation (4) stages. During these stages:

Contract Management and Improvement (1): Ongoing negotiations may be required to adjust terms and conditions as part of managing the contract lifecycle.

Contract Award and Implementation (4): Initial negotiations finalize terms, setting the foundation for successful contract execution.

These stages are pivotal in ensuring both initial and ongoing alignment, as outlined in the CIPS Procurement Cycle.

Below are some examples of cost input that can be analysed in PPCA process:

- Material costs

- Process and labour costs

- Employment costs

- Overhead costs

- Distribution costs

- Depreciation on equipment

- Profit

If you want to learn more on PPCA, you can study from OGC document here: https://webarchive.nationalarchives.gov.uk/20100609100650/www.ogc.gov.uk/documents/Cost_Price_analysis(1).pdf

LO 2, AC 2.1

An oligopoly exists when there are small number of producers that exert a significant influence in the market. Oligopoly's main characteristics are discussed as follows:

- Interdependence

The most important feature of oligopoly is the interdependence in decision¬-making of the few firms which comprise the industry. This is because when the number of competi¬tors is few, any change in price, output, product etc. by a firm will have a direct effect on the fortune of its rivals, which will then retaliate in changing their own prices, output or products as the case may be.

- Importance of advertising and selling costs

A direct effect of interdependence of oligopolists is that the various firms have to employ various aggressive and defensive marketing weapons to gain a greater share in the market or to prevent a fall in their market share. For this various firms have to incur a good deal of costs on advertising and on other measures of sales promotion. Therefore, there is a great importance of advertising and selling costs under conditions of market situation characterised by oligopoly

- Group behaviour

Another important feature of oligopoly is that for the proper solution to the problem of determination of price and output under, it analysis of group behaviour is impor-tant.

- Indeterminateness of demand curve facing an oligopolist

In this question, 'Prices in oligopoly are predicted to fluctuate widely and frequently' is an incorrect statement as producers in oligopoly often try to set up price. Prices fluctuate more frequently in perfect competition.

LO 2, AC 2.2