PGMP · Question #367
The Project Manager is creating an estimate for building a company WAN (wide area network.. As the Project Manager, you have undertaken the make-or-buy decision and determined that the WAN…
The correct answer is A. Proposals that use fixed-price. Fixed-Price (also called Lump Sum) contracts present the least financial risk (least probability of loss) for the buyer. Once agreed upon, the price is set - if actual costs exceed the contract price, the seller absorbs the loss, not the buyer. Cost-Plus contracts (Fixed Fee or…
Question
The Project Manager is creating an estimate for building a company WAN (wide area network.. As the Project Manager, you have undertaken the make-or-buy decision and determined that the WAN implementation should be outsourced because your company does not have the expertise. After receiving all the vendor proposals, you find that two of the proposals specify cost-plus-fixed- fee, two other of the vendors specify fixed-price, another two specify cost-plus-incentive-fee, and the last two specify time and material. Which of the proposals would present the least probability of loss for the company?
Options
- AProposals that use fixed-price
- BProposals that use cost-plus-fixed-fee
- CProposals that use time and material
- DProposals that use cost-plus-incentive-fee
How the community answered
(34 responses)- A82% (28)
- B3% (1)
- C12% (4)
- D3% (1)
Explanation
Fixed-Price (also called Lump Sum) contracts present the least financial risk (least probability of loss) for the buyer. Once agreed upon, the price is set - if actual costs exceed the contract price, the seller absorbs the loss, not the buyer. Cost-Plus contracts (Fixed Fee or Incentive Fee) require the buyer to pay all actual costs incurred plus additional fees, exposing the buyer to cost overruns. Time and Material contracts are open-ended (the buyer pays for all hours worked and materials used), making the final cost uncertain and potentially very high if the project runs long.
Topics
Community Discussion
No community discussion yet for this question.