Question 1: Correct

Stalemate is more likely to happen if both parties trade more variables in a commercial negotiation. Is this
assumption true?

Yes, because more variables will cause more conflicts of interest

No, because the party who offers more variables will have lower bargaining power

No, because more variables will facilitate more possible negotiated outcomes

(Correct)

Yes, because the negotiation will last endlessly if there are too many variables
Explanation
Negotiation variables such as price or contract length, etc are that can be traded with TOP in a negotiation. The
more variables you can identify, the better. The more variables you can identify and articulate, the lower the
chances of the negotiation reaching deadlock as more possibilities are facilitated regarding more creative
solutions.

Below are examples of negotiation tradeables in buying professional services:

LO 2, AC 2.3
Question 2: Correct
Which of the following are examples of non-verbal negotiation? Select THREE that apply.

Explaining to the supplier about the scope of the project

 •

Getting messages across with facial expressions

(Correct)

Asking the supplier to repeat their proposal

Communicating with the other party by using gestures

(Correct)

Using the body language

(Correct)

Speaking softly with long pauses

Explanation
Nonverbal communication is important because it gives us valuable information about a situation including how a
person might be feeling, how someone receives information and how to approach a person or group of people.

There are several types of nonverbal communications you should be aware of, including:

1. Body language

Body language is the way someone situates their body naturally depending on the situation, the environment and
how they are feeling.

Example: Someone might cross their arms if they are feeling angry or nervous.

2. Movement

The way you move your arms and legs such as walking quickly or slowly, standing, sitting or fidgeting, can all
convey different messages to onlookers.

Example: Sitting still and paying attention in a meeting conveys respect and attention.

3. Posture

The way you sit or stand can also communicate your comfort level, professionalism and general disposition
towards a person or conversation.

Example: Someone might slouch their shoulders if they feel tired, frustrated or disappointed.

4. Gestures
While gestures vary widely across communities, they are generally used both intentionally and unintentionally to
convey information to others.

Example: Someone in the United States might display a “thumbs up” to communicate confirmation or that they
feel positively about something.

5. Space

Creating or closing distance between yourself and the people around you can also convey messages about your
comfort level, the importance of the conversation, your desire to support or connect with others and more.

Example: You might stand two to three feet away from a new contact to respect their boundaries.

6. Paralanguage:

Paralanguage includes the non-language elements of speech, such as your talking speed, pitch, intonation,
volume and more.

Example: You might speak quickly if you are excited about something.

7. Facial expressions

One of the most common forms of nonverbal communication is facial expressions. Using the eyebrows, mouth,
eyes and facial muscles to convey can be very effective when communicating both emotion and information.

Example: Someone might raise their eyebrows and open their eyes widely if they feel surprised.

8. Eye contact

Strategically using eye content (or lack of eye contact) is an extremely effective way to communicate your
attention and interest.

Example: Looking away from someone and at the ground or your phone may convey disinterest or disrespect.

9. Touch

Some people also use touch as a form of communication. Most commonly, it is used to communicate support or
comfort. This form of communication should be used sparingly and only when you know the receiving party is
okay with it. It should never be used to convey anger, frustration or any other negative emotions.

Example: Placing your hand on a friend’s shoulder may convey support or empathy.

Reference:

- CIPS study guide page 174-175

- Nonverbal Communication Skills: Definition and Examples

LO 3, AC 3.3

Question 3: Correct
A public agency opens a tendering process for a road building project that lasts approximately 1 year. They post
their requirements on public journal and receive some interests. After conducting due diligence process and
selecting the lowest bidder, the project commences. However, the supplier complains that price of material
increases because of a shortage of supply, then they demands an 5% uptick in contract value. The agency
investigates the increment and sees that there is indeed a fluctuation in prices of supplier's input. They are likely
to accept the proposal, but they are also concerned that supplier may demand more. To avoid making another
concession with the supplier, which of the following should be a priority action of the agency?
 •

Disapprove supplier's demands until they finish the project

Seek approval from higher authority

Postpone the decision making until the budget is ready

Document a contract variation that only allows another concession if some specific conditions
arise

(Correct)

Explanation
The agency (buyer) has made a concession about the price. Possibly the supplier will request another
concession (the salami tactics). To avoid this to be happened, the agency should only allow a concession as an
exception, make sure that the concession is documented and only permitted against some exceptional
circumstances, and seek agreement to this from the supplier.

LO 3, AC 3.2

Question 4: Correct
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?

When both buyer and supplier want to find an integrative solution as their concerns are too
important to be compromised

When preserving harmony and avoiding disruption with supplier are especially important

(Correct)

When buyer and supplier have equal power but are strongly committed to mutually exclusive
goals

When buyer needs to gather more information to gain more advantages in later negotiations
Explanation
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive and cooperative approach to resolving the conflict. Accommodating means
conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point
of view and generally giving and yielding to the other party's point of view. Accommodating is best used when:

1. When others can resolve the conflict more effectively

2. When the issue is much more important to the other person than to yourself - to satisfy the needs of others and
to show you are reasonable

3. To build up social credit for later issues which are important to you

4. When continued competition would only damage your cause

5. When preserving harmony and avoiding disruption are especially important

6. To aid in the managerial development of subordinates by allowing them to experiment and learn from their own
mistakes

LO 1, AC 1.1

Question 5: Correct
Which of the following is the most appropriate approach to investors or shareholders who have high level of
influence but low interest in the running of business?

Manage them closely

Engage and consult with them regularly

Keep these people inform through general communication media

Engage and keep them satisfied

 (Correct)

Explanation
Investors or shareholders who have high level of influence but low interest belong to 'Keep satisfied' quadrant of
Mendelow's Stakeholder Matrix.

You may read 2 versions from L4M1 and L4M5 here:

LO 1, AC 1.1
Question 6: Correct
Which of the following statements about oligopoly is incorrect?

Oligopolistic firms recognize their interdependence

Prices in oligopoly are predicted to fluctuate widely and frequently

(Correct)
 •

One firm's behaviour is a function of what its rivals do

A few firms play an important role in the sale of a product

Explanation
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 competitors 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 important.

- 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

Question 7: Correct
In addition to organisational power, personal power of each negotiator can influence the outcomes of a
negotiation. A good negotiator can leverage different sources of power. Is this statement true?

Yes, because the good negotiator recognises his own power in a negotiation

(Correct)

No, because only organisational power can be leveraged during a negotiation

•
 Yes, because all sources of power have similar effectiveness in every situation

No, because each person has only one superior source of personal power
Explanation
Both organisational and personal power have the ability to influence the outcomes of negotiation. Good
negotiators recognises the different sources of relative personal power they possess in a negotiation. There is no
one superior source of personal power; they will vary in their effectiveness based on the situation. The more
personal sources available the better, even if some not used, these can be used as a fallback.

LO 1, AC 1.3

Question 8: Correct
Under EU public procurement directives, which of the following are procedures in which there is no commercial
negotiation allowed?

Competitive Dialogue

Innovation Partnerships

Competitive Procedure with Negotiation

Open Procedure

(Correct)

Restricted Procedure

(Correct)

Explanation
Under the European Union public procurement directives, all public sector bodies must abide by certain rules
when they procure goods and services over a threshold value. These rules are codified under 5 procurement
procedures:

1. Open Procedure

2. Restricted Procedure

3. Competitive Dialogue

4. Competitive Procedure with Negotiation

5. Innovation Partnerships.
Under normal circumstances, there is no commercial negotiation allowed under the two most commonly used
procedure, Open and Restricted. Under these procedures, the prices and terms and conditions of contract should
be decided via reference only to the tenderers' responses to the buyer's requests for tenders, and not through
'post-tender negotiation'. Under the other procedure, negotiation within the rules is permitted. Interested learners
can read more about these procedures here.

LO 1, AC 1.1

Question 9: Correct
During a negotiation, the supplier requests for payment term shortened to 45 days from 60 days. Seeing that this
proposal lies within the concession plan, the procurement manager asks for 5% discount in return. Is that right
thing to do?

Yes, the procurement manager should keep that 5% for himself because that amount is a fair
compensation for his effort

No, procurement should insist the payment term remains 60 days

Yes, since procurement manager has his own cost savings target to achieve and he should
make use of supplier's financial status

(Correct)

No, it is unethical to exploit the weakness of the other party

Explanation
When preparing for a negotiation, negotiator should establish a list of tradeables and a concession plan. Good
negotiators never give anything away that has not already been planned as part of the bargaining mix in the
concession planning stage.
In the above scenario, the procurement manager has planned his own concession, so he can trade with supplier.
The answer should be "Yes, since procurement manager has his own cost savings target to achieve and he
should make use of supplier's financial status"

LO 2, AC 2.3

Question 10: Correct

Which of the following are most likely to be macro factors that may influence the balance of power in commercial
negotiation? Select THREE that apply.

Number of substitute products or services

Sustainability of natural resources

(Correct)

Purchasing spend volume

Disruptive technologies

(Correct)

•
 Intensity of competition in a industry

Economic growth rates

(Correct)

Explanation
All one-to-one commercial negotiations between a specific purchaser and a specific supplier take place within an
industrial market and a larger business environment characterised by multiple forces which both parties typically
have little control over. STEEPLE framework highlights the 6 main external influences on a business:

LO 1, AC 1.3
Question 11: Correct
Which of the following are most likely to be fixed costs of an airline? Select TWO that apply.

Advertising and promotion

Flight crew training

(Correct)

Fuel

Catering services

Purchase of aircraft

(Correct)
Explanation
Fixed costs (FC) are costs that do not vary with volume. To an airline once aircraft are purchased, flight crews
trained and departures scheduled, costs are disproportionately fixed.

Variable costs (VC) are those which vary with the amount produced. Fuel, catering services and marketing are
examples of variable.

LO 2, AC 2.1

Question 12: Correct

Telephone is most likely to be used for which of the following negotiations?

High value contract

Routine transactions

(Correct)

Contract for purchasing a specialised product

Complex one-off purchase

Explanation
Many commercial negotiations could be considered routine or just not worth the investment for buyers, and using
the phone can make more sense and can be more immediate.

LO 2, AC 2.4

Question 13: Correct

A buying organisation with a low spend but the reputation for paying on-time. In order to increase buyer's
leverage in negotiation with suppliers, which of the following should be a priority of this buyer?

Spend concentration

(Correct)

Unavailable technical support

Unclear tender award criteria

 •

Volume separation
Explanation
According to Paul Steele's 'The Seller's Perspective', customer can be classified into 4 categories as below:

To increase the leverage in negotiation, buyer may increase its attractiveness and/or increase spend value. In
this scenario, the buyer is already attractive to supplier as it always pays on-time, but the spend is still low. So to
have greater leverage, the buyer has to increase its spend volume by spend concentration. Spend concentration
may take many forms as following:

- Vendor base reduction

- Volume pooling

- Volume redistribution

- Volume consolidation across categories

- Standardisation and harmonisation of specifications

- Forming purchasing consortia

LO 1, AC 1.3

Question 14: Correct

When is the best time in procurement process in which procurement should get involved so that the cost-saving
opportunities are the greatest?

Post-tender stage

•
 Specification stage

(Correct)

Market consult stage

Post-contract stage
Explanation
The earlier procurement get involved in the procurement processes, the better. If procurement are involved in
design at the specification stage they can feed in prices and costs to designer so they know the likely budget
implication of choices made. Sending in a procurement team to negotiate at or close to the end of the
procurement process effectively ties their hands and limits their negotiation leverage. This is illustrated in the
graph below:

LO 2, AC 2.1
Question 15: Correct
Which of the following are most likely to harm trust between buyer and supplier in a commercial relationship?
Select TWO that apply.

Reduced response time during contract performance

Avoidance of submitting important documentations

(Correct)
 •

Exploring a disagreement to learn from each other's insights

Subjective assessment of performance

(Correct)

Resolving some conditions that would otherwise have them competing for resources
Explanation
Trust-destroying behaviours:

- Rumours of partnership or relationship breaking down

- Emotion-based assessment of performance

- Avoiding accountability, passing the blame to others

- General mood – resentment, distrust, frustration, etc

LO 1, AC 1.4

Question 16: Correct

Leitax is a consumer electronics firm with headquarters in the US and with a global sales presence. The
company maintains seven to nine models in its product portfolio, each of which has multiple SKUs. Product life
ranges from fifteen to nine months and is getting shorter. The demand planning and master planning processes
at the company were ill-defined. Data relevant to forecasting were usually inaccurate, incomplete, or unavailable
and the lack of objectives and monitoring mechanisms for the demand planning process meant that process
improvement could not be managed. Support for supply management was equally ill-defined, as master
production schedules were sporadic and unreliable and suppliers had learned to mistrust them. Leitax's newly
appointed Supply chain director, Jessica realises that the “buy-in” of different functional groups was critical to the
improvement of demand planning. She invites relevant stakeholders to a meeting so that they can express their
opinions openly. What tactic is Jessica using?

Consultation

Pressure

Coalition

(Correct)

•
 Persuasion
Explanation
There are nine commonly used influence tactic:

1. Rational persuasion includes using facts, data, and logical arguments to try to convince others that your point
of view is the best alternative. This is the most commonly applied influence tactic.

2. Legitimating

3. Personal appeals

4. Exchange

5. Ingratiation

6. Pressure refers to exerting undue influence on someone to do what you want or else something undesirable
will occur.

7. Coalitions refer to a group of individuals working together toward a common goal to influence others.

8. Inspirational appeals

9. Consultation refers to the influence agent’s asking others for help in directly influencing or planning to
influence another person or group.

In the scenario, there is a problem with demand forecasting and supply chain planning in Leitax. The new Supply
chain director invites the stakeholders to a meeting to find the solution. She is using coalition tactics.

Reference:

- CIPS study guide page 163-168

- Cross-Functional Alignment in Supply Chain Planning: A Case Study of Sales and Operations Planning

- 13.3 The Power to Influence – Organizational Behavior (umn.edu)

LO 3, AC 3.2

Question 17: Correct

Which of the following is the internal factor that is taken into price of a product?

Risk management

(Correct)

Exchange rate

Customer tastes

•
 Elasticity
Explanation
In order to answer this question, you should better consider each option:

'Exchange rate' is the value of one nation's currency versus the currency of another nation or economic zone.
This is a macroeconomic factor.

'Elasticity' refers to the degree to which individuals, consumers or producers change their demand or the amount
supplied in response to price or income changes. This is a microeconomic factor

Consumer tastes refer to the products and services that consumers consciously choose over others. Consumer
tastes are so powerful that they can change how businesses conduct their activity. Like elasticity, this is also a
microeconomic factor.

Among 4 options, only risk management is the internal factor. Risk pricing is a strategy applied by many
companies in the world. To learn how to price the risk, you can read an article from
McKinsey: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-to-price-risk-to-
win-and-profit

This is a question that a student met in her actual exam. The knowledge section is unknown.

LO: Unknown, AC: Unknown

Question 18: Incorrect

Which of the following are most likely to be the potential cultural differences that can make transactions with an
international supplier more problematic that with local suppliers? Select TWO that apply.

The importance of timescales

(Correct)

Currency exchange fluctuation

(Incorrect)

Incoterms and logistics difficulties

The use and interpretation of body language

(Correct)

Payment mechanism
Explanation
The question requires student to detect factors of cultural differences. Problems may occur on the international
scene with such things as the importance of extending courtesy between cultures, the importance of timescales,
the use of negotiating ploys, the sense of ‘fair play', the use and interpretation of body language, the role of
women in negotiations (or indeed, in business in general), the importance of status, the role of conflict, standards
of dress and deportment and the readiness to ignore or uphold contract terms and conditions.

LO 3, AC 3.3

Question 19: Correct

Which of the following types of questions should be used most often in the proposing phase?

Open questions

Probing questions

Closed questions

Hypothetical questions

(Correct)

Explanation
At the proposing phase either side may start making tentative proposals regarding their offering. In the case of
negotiation where TOP has already submitted a tender or proposal, this stage may provide an opportunity for
them to make proposals to improve on their initial offers in general or in areas highlighted by the buying side in
advance.

The word 'if' is very useful at this stage and allows you to test tentative proposals without committing yourself.
Skilled negotiators use language very carefully. The questions with 'if' are hypothetical ones.

LO 3, AC 3.1

Question 20: Correct

Which of the following are most likely to be fundamentals of Fisher & Ury's principled negotiation?

1. Depersonalise the argument

2. Focus on positions

3. Generate creative options

4. Using subjective criteria

2 and 4 only

•
 1 and 3 only

(Correct)

1 and 4 only

2 and 3 only
Explanation
Principled negotiation is based on four fundamentals: people, interest, options and criteria:

1st Principle: separate the people from the problem: Negotiator should depersonalise the situation and accepting
that the subject matter of the negotiation. This can be difficult for untrained negotiators, but this is a key skill to
develop

2nd principle: focus on interests, not positions: It is important in principled negotiations not to focus on their
parties' positions (what are expressed during negotiations), but on the interests (underlying needs) behind them

3rd principle: invent options for mutual gains: this principle aims to help the parties find a solution that both would
benefit from. The more options - or tradeables - that can be brought to the table the better.

4th principle: insist on using objective criteria: is about making sure that the negotiation stays focused on
outcomes based on objective criteria and that it is productive.

LO 1, AC 1.2

Question 21: Correct

Information generated through Purchase Price Cost Analysis can be useful to the purchaser, by helping to
identify which of the following costs relating to the supplier? Select the THREE that apply.

Budgeted costs

External costs

•
 Material costs

(Correct)

Profit

(Correct)

Market costs

Depreciation on equipment

(Correct)

Explanation
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_anal
ysis(1).pdf

LO 2, AC 2.1

Question 22: Correct

In a detailed cost breakdown, a company has a salary cost of 9%, raw materials cost 51% and overheads cost
24%. Which of the following represents the mark-up of that company?

Approximately 16%

•
 Approximately 116%

Approximately 84%

Approximately 19%

(Correct)

Explanation
Mark-up is the amount added to the cost of an item to get to its selling price and is expressed as a percentage.

Mark-up (%) = (Price - Cost) / Cost x 100

= (100 - 9 - 51 - 24) / (9 +51 +24) x 100 = 16 / 84 x 100 = 19.04%

LO 2, AC 2.1

Question 23: Correct

In general, which of the following is the consequence of a flatter demand curve?

Price inelastic

Unit price elastic

Quantity elastic

Price elastic

(Correct)

Explanation
Elasticity refers to the responsiveness of quantity demanded or quantity supplied to a change in price or another
factor.

In microeconomic graphs, elasticity and inelasticity can be shown by the slope of the demand curve. If a demand
curve is almost horizontal, then the product pricing can be described as very elastic. If a demand curve is almost
vertical, then the product pricing can be described as very inelastic.

The formulae of elasticity:

LO 2, AC 2.2
Question 24: Correct
XYZ Ltd decides to go to market for a cleaning contract to service a number of offices. It knows that it will get a
price which may, or may not, be better than the one it is currently paying. To gain leverage in the marketplace,
the organisation decides to add other related services to the scope, such as gardening, security and
maintenance, which increase the value of the contract. This is an example of which forms of spend
consolidation?

Purchasing consortia

Volume consolidation across categories

(Correct)

Volume pooling

Volume redistribution
Explanation
Buying organisation may increase its leverage with suppliers by concentrating spend. Supplier spend
consolidation can take many forms as outlined below:

- Vendor base reduction: straightforward reduction of number of suppliers in any category

- Volume pooling: pooling cross organisational requirement until your order volume is high enough to attract
new bidders/additional discounts

- Volume redistribution: making recommendations following spend analysis to move from one supplier to
another

- Volume consolidation across categories: certain purchase requirements may be common across a number
of categories. In the scenario, XYZ has combined different categories but closely related to office services into a
larger contract so that they can increase their leverage.

- Standardisation and harmonisation of specifications: analysis of specifications and standards for a high
spend purchased input, may show that there is a little difference between them and that the specification can be
standardised or at least harmonised across the group or across national, regional or global operations.

- Forming purchasing consortia: buyers may decide to come together and combine their purchase volumes to
attract better deals.

LO 1, AC 1.3

Question 25: Correct

If the value of the British Pound in other currencies is strong, which of the following is most likely to occur?

The price of UK products abroad in foreign currency will rise

(Correct)

The price of UK products abroad in foreign currency will fall

The price of UK products in the UK will fall

The price of UK products in the UK will rise

Explanation
Currency exchange rates are determined by macroeconomic factors and demand and supply. In general,
countries with stable political and economic systems, a growing economy and a strong rule of law will have
stronger and more stable currency than those without these characteristics. In this question, the British Pound is
stronger than other currency, which means that buyers who import goods from the UK have to pay higher in their
own currencies.

LO 2, AC 2.2

Question 26: Correct

An oil refinery plant imports much of its crude oil from overseas. A procurement manager in the refinery suggests
that fixing the crude oil contract price for 36 months would be beneficial for the company. Would this be a right
thing to do?

No, the refinery would not be able to reap the benefits from falling commodity price and currency
rates
 (Correct)

Yes, the supplier would bear the risk when the material price increased

Yes, financial budgeting task would be a lot easier with fixed pricing arrangement

No, fixed price should be only applied to contracts that last 60 months or longer
Explanation
Fixed price contract is the contract in which the price is static throughout the contract period. A fixed-price
contract may give certainty to budget and simplify contract management. However, it may lead to other problems
since it requires bidders to estimate and bear the financial risks associated with price escalations. If the estimates
are too high or events do not materialize, the buyer will pay a steep price that may affect the economy and
efficiency of the contract. In the worst case, it may mean that the bid price is then above budget and may lead to
a reduction in the requirements or rebidding. If the estimates are too low, it may appear as an abnormally low bid
and disrupt contract execution.

On the other hand, price adjustment provisions include formulas designed to address problems, and can protect
both the borrower and contractors from price fluctuations. Price adjustment formulas allow contractors to offer
more realistic prices at the time of bidding. Despite concerns that they may lead to budget uncertainties, price
adjustment formulas will estimate the actual cost implications that will be encountered. They use indexes that can
be used for cost projection.

According to Asia Development Bank (ADB), any contract with a delivery or completion period beyond 18 months
should contain an appropriate price adjustment clause.

In the scenario, the crude oil contract is planned to last 36 months. This period is pretty long with a fluctuating
commodity. Therefore, the company should use price adjustment agreement.

Reference:

- CIPS study guide page 113-117

- Guidance Note on Procurement: Price Adjustment (adb.org)

LO 2, AC 2.2

Question 27: Correct

There are no commitments in hypothetical questions. Is this statement true?

No, because hypothetical questions are made explicitly to the other party

Yes, because hypothetical questions only mention possible situations

(Correct)
 •

Yes, because hypothetical questions generate a specific response

No, because the party who makes hypothetical questions cannot withdraw their proposals
Explanation
There are four types of questions that can be used in a commercial negotiation:

Hypothetical questions, where you ask about a possible situation or abstract concept, are very useful at the
testing and proposal phases. Hypothetical question does not state any commitment as it is only about 'if
something happens, then ...'. This type of question can be useful at giving suggestion.

LO 3, AC 3.3