Tài liệu tiếng Anh thương mại quản lý Chapter 15 Methods of compensation

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