Tài liệu tiếng Anh thương mại quản lý Chapter 15 Methods of compensation
Chapter 15 Methods of Compensation 15-1 Key Concepts • Introduction to compensation agreements • Contract cost risk appraisal » Technical risk » Contract schedule risk • General types of contract compensation agreements » Fixed price contracts » Incentive contracts » Cost-type contracts 15-2 Key Concepts • Specific types of compensation agreements » Firm fixed price contracts » Fixed price with economic adjustment contracts » Fixed price redetermination contracts » Incentive arrangements » Cost plus incentive fee arrangements » Cost plus fixed fee arrangements » Cost plus award fee » Cost without fee » Cost sharing » Time and materials » Letter contracts and letters of intent • Considerations when selecting contract types 15-3 Introduction to Compensation Agreements • The compensation arrangement determines: » Degree and timing of the cost responsibility assumed by the supplier » Amount of profit or fee available to the supplier » Motivational implications of the fee portion of the compensation arrangements 15-4 Example 1: Low Level of Uncertainty Potential Outcomes Seller’s Cost Seller’s Price Seller’s Profit Low $950,000 $1,100,000 $150,000 Most Likely 1,000,000 1,100,000 100,000 High 1,050,000 1,100,000 50,000 Firm Fixed Price Contract 15-5 Example 2: High Level of Uncertainty Potential Outcomes Seller’s Cost Seller’s Price Seller’s Profit Low $500,000 $1,100,000 $600,000 Most Likely 1,000,000 1,100,000 100,000 High 1,500,000 1,100,000 (-400,000) Same FFP Contract as 19-1 15-6 Example 2: Continued • Most sellers are unwilling to large risks » The supplier will not want to offer the contract at $1,100,000 due to this additional uncertainty • In this case, the seller studies the distribution of likely cost outcomes and concludes that, 9 times out of 10, the actual cost will be $1,400,000 or less • Based on the risk aversion, the seller may demand a firm fixed price of $1,540,000 » $1,400,000 plus $140,000 (10 percent profit on this cost) » The supplier will not lose money on the contract 15-7 Example 2: Continued Potential Outcomes Seller’s Cost Seller’s Price Seller’s Profit Low $500,000 $1,540,000 $1,040,000 Most Likely 1,000,000 1,540,000 540,000 90% Level 1,400,000 1,540,000 140,000 High 1,500,000 1,540,000 40,000 Firm Fixed Price Contract 15-8 Example 2: Continued Potential Outcomes Seller’s Cost Seller’s Price Seller’s Profit Low $500,000 $550,000 $50,000 Most Likely 1,000,000 1,050,000 50,000 90% Level 1,400,000 1,450,000 50,000 High 1,500,000 1,550,000 50,000 Cost Plus $50,000 Fixed Fee 15-9 Example 2: Continued Potential Outcomes Seller’s Cost Seller’s Price Seller’s Profit Low $500,000 $550,000 $50,000 Most Likely 1,000,000 1,100,000 100,000 90% Level 1,400,000 1,540,000 140,000 High 1,500,000 1,650,000 150,000 Cost Plus Fixed 10% Fee 15-10 [...]... nature of the item » Technical risk appraisal: – Type and complexity of the item or service – Stability of design specifications or statement of work – Availability of historical pricing data – Prior production experience • Contract Schedule Risk » Anticipate material and labor cost increases – Forward pricing is common » Anticipate possible schedule slippages 15- 11 General Types of Contract Compensation. .. 50 $1,050 15- 29 Cost Plus Award Fee (CPAF) • The award fee is a pool of money established by the buyer to reward the supplier in meeting the buyer’s stated needs • Receipt of the fee is based on the buying firm’s subjective evaluation • CPAF works as a flexible tool 15- 30 Cost Without Fee • Used primarily by nonprofit institutions • Used for research work without the objective of making a profit • Institutions... additional resources to meet deadlines 15- 33 Concluding Remarks • Sound application of the compensation methods presented will significantly reduce expenditures when cost risk is present • Compensation agreements must result in a reasonable allocation of the cost risk • Agreements should also provide adequate motivation to the supplier to assure effective performance 15- 34 END ... Example 15- 22 Cost Plus Incentive Fee Arrangements • Combine the incentive arrangement and the cost plus fixed fee arrangement • Under a CPIF arrangement, an incentive applies over part of the range of cost outcomes • The fee structure resembles a cost plus fixed fee contract at both the low-cost and high-cost ends of the range 15- 23 Cost Plus Incentive Fee Example • Target cost = $1,000,000 • Target profit... their use of this contract type 15- 31 Cost Sharing • In some situations, a firm doing research under a cost type of contract stands to benefit if the product developed can be used in its own product line • Under such circumstances, the buyer and the seller agree on what they consider to be a fair basis to share the costs (most often it is 50-50) • The electronics industry has found this type of contract... incentive fee 15- 20 Elements of a Simplified Incentive Contract • Target cost » Cost outcome both buyer and supplier feel is the most likely outcome • Target profit » Amount considered fair and reasonable • Allocating costs above or below target » Recognizes the target most likely will not be met » A sharing arrangement is agreed upon that reflects the sharing of the cost responsibility 15- 21 Fixed Price... Select from the appropriate Bureau of Labor Statistics category • Avoid broad indexes; use the lowest-level classification • Develop a weighted index for materials in a product • Select labor rate indexes by type and location • Define energy indexes by fuel type and location • Analyze the past history of each index versus actual price change of the item being indexed 15- 18 Fixed Price Redetermination... $70,000 • Optimistic cost = $800,000 • Optimistic and maximum profit = $120,000 • Pessimistic cost = $1,400,000 • Pessimistic and minimum profit = $20,000 • Sharing below target (customer/supplier) = 75/25 • Sharing above target (cust./supplier) = 87.5/12.5 15- 24 CPIF Contract Example Continued • • • • • Target cost = $1,000,000 Target profit = $70,000 Maximum fee = $120,000 Minimum fee = $20,000 Cost... price = final cost + maximum fee » $820,000 = $700,000 + $120,000 15- 25 Cost Plus Incentive Fee Arrangements • Cost savings = target cost - final cost • Supplier’s share of cost savings = cost savings × supplier share • Computed fee = savings fee + target fee • Final price = final cost + maximum fee 15- 26 Cost Plus Incentive Fee Example 15- 27 Cost-type Arrangements • Used when: » Research and development... redetermination 15- 13 When to Use FFP • Specifications are well defined • Cost risk is low • Schedule risk is low • Technical risk is low • Competition has established pricing 15- 14 Firm Fixed Price Contract Example Figure 19-3 15- 15 Reasons Why Firm Fixed Price Contracts Do Not Always Remained Fixed • A supplier losing money may request relief if: » Customer contributed to the loss » Customer badly needs . Chapter 15 Methods of Compensation 15- 1 Key Concepts • Introduction to compensation agreements • Contract cost risk appraisal » Technical risk » Contract schedule risk • General types of. supplier » Amount of profit or fee available to the supplier » Motivational implications of the fee portion of the compensation arrangements 15- 4 Example 1: Low Level of Uncertainty Potential Outcomes. and letters of intent • Considerations when selecting contract types 15- 3 Introduction to Compensation Agreements • The compensation arrangement determines: » Degree and timing of the cost