Make-or-Buy Decisions and Time Materials Contracts Explained

724 PROCUREMENT AND CONTRACT MGMT. Test 1 Winter 2024 (Section 002) STUDENT NAME: OGHENERO OWARIETA STUDENT NUMBER: 301275053

724 Test 1 Choose 2 of the following 4 questions. Short answer question for 5 marks. Substantiate your answer, and provide any references. 1. List the factors to consider when a make-or-buy decision needs to be made. Give examples. (5 marks) These are some of the factors to consider when making a make-or-buy decision. Costs : Compare internal manufacturing costs with purchasing costs. For example, if producing a component in-house is much more expensive than purchasing it, purchasing may be the best alternative. Quality control : Through our own production, the quality can be better controlled. For example, a company specializing in precision instruments may choose to manufacture key components to ensure high quality. Capacity : Determine whether current facilities can meet production expectations. If a small bakery does not have enough capacity to meet increased demand, it can purchase cakes from another supplier. Experience : Consider how much experience is required. A technology company may purchase specific components for its products if it lacks the expertise to produce them efficiently. Delivery time : In-house production can shorten delivery times. For example, a fashion retailer can quickly develop fashion items internally to meet rapidly changing market demands. Strategic Control : Maintaining strategic control over critical components or technologies can result in a decision being made rather than a purchase. 1

724 Test 1 For example, an automobile manufacturer may produce essential engine parts in-house to maintain its technological superiority. Evaluating these factors helps make an informed “make or buy” decision by balancing cost, quality, capacity, experience, delivery time and strategic control. 2

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724 Test 1 Short answer question for 5 marks. Substantiate your answer, and provide any references. 2. Many experts consider time and material contracts to be a good example of a win-win outcome of the negotiation between the buyer and seller. Explain why time and material contracts are considered to be beneficial to the buyer and the seller . Give examples. (5 marks) Time and material contracts provide a flexible framework for buyers and sellers, aligning interests and encouraging collaboration. Buyers gain from paying just for actual work and materials utilized, which allows for scope changes without renegotiating conditions. This is especially useful in projects with changing requirements, such as software development, where flexibility assures alignment with goals. Sellers, on the other hand, benefit from appropriately charging for time and resources, which ensures equitable pay. This model is ideal for dynamic undertakings like construction or creative endeavours, as it promotes openness and reduces financial risks. Also, time and material contracts foster a collaborative approach, which increases satisfaction and project success for both sides. For example, a start-up, with a limited budget for website development, can use a time and material contract with a web designer. This ensures they only pay for actual hours worked and resources used, allowing adjustments based on budget or changing needs. It offers financial control and flexibility. 3

724 Test 1 Short answer question for 5 marks. Substantiate your answer, and provide any references. 3. List all the requirements of the “Plan Procurement Management” process, and briefly describe the importance of each. Give examples. (5 marks) 4

724 Test 1 Short answer question for 5 marks. Substantiate your answer, and provide any references. 4. You are a Project Manager who needs to hire a software vendor. The project is Regulatory, meaning that the project must complete by February 2024 to meet Legal requirements. It is currently September 2023. What factors will you consider when deciding on a vendor? (5 marks) 5

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724 Winter 2024 Test 1 Final

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