Question 1: Correct

Distributive approach in negotiation is typified by which of the following?

Both parties share 50:50 of the 'pie'

Distributive approaches are inherently inferior to integrative approaches in commercial

negotiation

Each party attempts to maximise the value obtained at other's expense

(Correct)

Both parties understand each other's goals

Explanation
Distributive approach to negotiation used when the interested parties are attempting to divide something up or
distribute something of value, also known as zero-sum approach or win-lose. Commercial situations often
demand a distributive bargaining approach, if the 'pie' is inherently of a fixed size. In this case, any conflicts must
be resolved by sharing it.

In win-lose approach, a negotiator wants to maximise the value obtained in a single deal, the relationship with the
other party is not important. Therefore, a strong party may win more than 50% of the metaphorical 'pie'.

It should not be assumed that win-win can be applied to all commercial negotiations, or that win-lose approaches
are inherently inferior.

LO 1, AC 1.2

Question 2: Correct
Which of the following is the first step in the development of negotiation strategies?

Developing scenarios around possible options

Determining your BATNA

Recognising TOP's needs and wants

Defining overarching objectives

 (Correct)

Explanation
Developing specific negotiation strategies in areas where risk or spend is high involves analysing a wide range of
objectives and variables within the context of the organisation's business requirements. The first stage in any
negotiation preparation is to define your overall objectives which may be related to a single variable such as price
in the case of a standardised requirement, or many variables in the case of capital equipment. Your negotiating
strategies and tactics will all be focused on achieving overall objectives.

LO 2, AC 2.3

Question 3: Correct
In which of the following persuasion methods, the influencer uses logics and objective reasons to persuade the
others to buy into influencer's ideas?

Visionary (pull)

Directive (push)

Persuasive reasoning (push)

(Correct)

Collaborative (pull)
Explanation
There are two major persuasion methods: 'push' and 'pull'.

Persuasion can be defined as encouraging someone to do something that you want them to do for you.
Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do.
Persuasion can be considered as 'pushing' on TOP so that they can accept the change in attitude or behaviour
as a result of your actions.

Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP
so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of
their reflection and thinking, and not your direct actions.

There are multiple variables to consider when choosing between 'push' and 'pull'. Professor Fiona Dent of
Ashridge Business School proposes situations when each style might be most appropriate, breaking down push
into 'directive' and 'reasoning' and 'pull' into 'collaborative' and 'visionary':
Using logical and objective reasons is one of the typical characteristics of persuasion reasoning method.
LO 3, AC 3.2

Question 4: Correct
Which of the following are most likely to be direct costs of a steel manufacturer? Select THREE that apply

Scrap metal

(Correct)

Senior management salary

Coal

(Correct)

Hourly production wages

(Correct)

Insurance for production lines

Cleaning services
Explanation
Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of
direct costs including the following:

- Materials and services bought-in: In steel manufacturer, raw materials are iron ores, scrap metal, coals, etc

- Labour or wages: money paid to staff for the work involved in producing the product.

- Other expenses: other charges incurred that can be specifically attributed to a particular product, batch or
service

...

LO 2, AC 2.1

Question 5: Correct
To buying organisation, savings can be achieved from different saving levers or tactics. Which of the following
are means that deliver savings through optimising specifications?

•
 Compare total cost of ownership

Part substitution

(Correct)

Budget linkages

Volume pooling

Value engineering

(Correct)

Explanation
If driving greater value and efficiency from your supply base is your end, you should remember that there are
many ways to do this without seeking to negotiate lower prices. Below are 7 types of saving levers:

LO 2, AC 2.1
Question 6: Correct
Neville is a senior procurement specialist in a automaker. He has good relationship with his team mates and
other departments because of his amazing purchasing skills and kindness. Which of the following sources of
power is Neville likely to possess?

•
 Coercive

Reward

Legitimate

Referent

(Correct)

Explanation
In 1959, French and Raven described five bases of power:

1. Legitimate – This comes from the belief that a person has the formal right to make demands, and to expect
others to be compliant and obedient.

2. Reward – This results from one person's ability to compensate another for compliance.

3. Expert – This is based on a person's high levels of skill and knowledge.

4. Referent – This is the result of a person's perceived attractiveness, worthiness and right to others' respect.

5. Coercive – This comes from the belief that a person can punish others for noncompliance.

Six years later, Raven added an extra power base:

6. Informational – This results from a person's ability to control the information that others need to accomplish
something.

In the scenario, Neville attracts and keeps good relationship with his colleagues not because of neither position
nor reward nor coercion. He has good skills and kindness, which increase his charisma. His source of power is
referent power.

Reference:

- CIPS study guide page 47-50

- French and Raven's Five Forms of Power

LO 1, AC 1.3

Question 7: Correct
Which of the following are examples of push techniques in commercial negotiations? Select TWO that apply.

Threat of punishment, costs and damage

(Correct)
 •

Working together to define the problem, the goals and the best solution

Listening to, involving and supporting others

Using language and imagery to ‘paint a picture others can see’

Argument based on information, logic and reason

(Correct)

Explanation
There are two major persuasion methods: 'push' and 'pull'.

Persuasion can be defined as encouraging someone to do something that you want them to do for you.
Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do.
Persuasion can be considered as 'pushing' on TOP so that they can accept the change in attitude or behaviour
as a result of your actions.

Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP
so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of
their reflection and thinking, and not your direct actions.

There are 5 options in this question:

'Threat of punishment, costs and damage': The influencer tries to 'push' the other party to act as he/she wants by
using force. This method is effective but short-lived. The influencer also risks to developing reputation for being
heavy handed and dictatorial.

'Argument based on information, logic and reason': The influencer uses logic and reasons to persuade the other
party. This is also known as 'Persuasive Reasoning' (Push)

'Using language and imagery to ‘paint a picture others can see’': The influencer seeks to influence another by
understanding the other's emotions, and stimulating that party's imagination to visualise the desired future goal of
the influencer. This is also known as 'visionary (pull)'

'Working together to define the problem, the goals and the best solution': In this technique, the person seeking to
influence another involves the other party in the decision making process. This is known as 'collaborative (pull)'

'Listening to, involving and supporting others': In this technique, the person seeking to influence another tries to
discover the other party's emotion and aims at mutual understanding. This is also a collaborative approach.

LO 3, AC 3.2

Question 8: Correct
Which of the following are examples of connected stakeholders in a private organisation? Select TWO that apply.

•
 Government

Shareholders

(Correct)

Media

Customers

(Correct)

Local community
Explanation
Connected stakeholders are those who, by contractual or commercial relationships, have a significant stake in
organisation activity. As a general rule, connected stakeholder (with the exception of suppliers) have a low level
of influence on procurement negotiations.

Examples of connected stakeholders are: suppliers, customers, bank where the organisation opens its account,
shareholders.

LO 1, AC 1.1

Question 9: Correct
When implementing value analysis or value engineering, which of the following acronyms reminds both buyer
and supplier of ideas on removal, substitution and design-out of cost elements?

OWN-IT

SAMOA

STOPS WASTE

(Correct)

SMART
Explanation
Ray Carter coined the mnemonic STOPS WASTE to remind buyers of 10 cost-reduction ideas they can ask for
themselves and their suppliers in any situation when considering a key purchase input. Stop Waste by:

• Standardisation - is there a standard specification?

• Transportation - is the inbound transport classification appropriate

• Over-engineered - is the specification too tight?

• Packaging - can packaging be reduced or eliminated?

• Substitutes - is there a cheaper substitute material

• Weight - is there opportunity to reduce weight of the product?

• Any unnecessary processing - is there any unnecessary design or feature?

• Supplier’s input - are suppliers able to assist with the cost reduction

• To make - is it more economical to make or buy?

• Eliminate - if no one uses the feature, can it be eliminated?

SAMOA is a useful acronym for checking and testing the information gathered from the Internet:

- Source

- Audience

- Methodology

- Objectivity

- Accuracy

OWN-IT is acronym for 5 steps in the process of collecting and analysing the data and information needed in any
field:

- Outline

- Wide search

- Narrow search

- Increase your stockpile of information

- Transform your stockpile into new knowledge

A SMART goal is used to help guide goal setting. SMART is an acronym that stands
for Specific, Measurable, Achievable, Realistic, and Time-bound.

LO 2, AC 2.1

Question 10: Correct

In a commercial negotiation, a procurement professional negotiates on his company's behalf. The power of
buying organisation is the only factor that influences the behaviours of the other party. Is this assumption true?
 •

Yes, because the outcomes of negotiation are attributable to the buying organisation

No, because personal power of negotiators also attributes to the outcomes

(Correct)

No, because power of supplier is the only factor that influences the other party

Yes, because buyer's brand, reputation and purchasing spend largely determine the outcomes
Explanation
The assumption is false, because when a procurement professional negotiates on behalf of his employer, he
brings the power of his organisation (its brand, reputation and purchasing spend) as well his own personal power
(that which is embedded within him) to the negotiation.

From a negotiation perspective, both organisational and personal power have the ability to influence the
behaviours of other or the cause of event. This power is clearly core to negotiation, and of enormous important in
seeking to achieve the objectives.

LO 1, AC 1.3

Question 11: Correct

At the first stage of CIPS Procurement and Supply Cycle (Understand need), which of the following is the most
important duty of procurement professional?

Demand management

(Correct)

Undertaking 'reverse marketing'

Deciding whether RFQ or ITT should be used

Evaluating the interests from suppliers

Explanation
At the first stage of CIPS Procurement and Supply Cycle (Understand need and develop a high-level
specification), procurement professional mainly negotiate with internal stakeholders. They have a duty to
proportionately and constructively challenge specification if there's genuine doubt over the need or how the need
is expressed. This is called demand management. Their first duty is to the organisation's treasury, not to
functional managers.

Demand management including: negotiation/challenge between procurement and internal stakeholders over the
need/requirement/specification. Remember that in any process or product, the greatest opportunity for cost
reduction is at the design stage.

LO 1, AC 1.1

Question 12: Correct

SBL provides contract bathroom furniture and fittings for a wide variety of domestic and commercial clients. To
some suppliers, SBL spend claims a large portion of their revenue. But SBL is famous for imposing draconian
obligations on these suppliers. Which of the following is most likely to be overarching objective of these suppliers
to SBL?

Win and keep business with SBL at any costs, even without profits

Charge a higher price to compensate for all the pain SBL has put

(Correct)

Hold on and keep SBL happy but make sure that the business is profitable

Drop the business with SBL immediately

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

In this scenario, although SBL's spend claims large portion in suppliers' revenues, their draconian treatment will
reduce SBL's attractiveness in supplier's perspective. SBL falls into Exploit quadrant. With exploitable customers,
suppliers tend to 'milk' the customer and charge a high price to compensate for all the pain customer put on
them.

LO 1, AC 1.3

Question 13: Correct

Are tactical ploys only used in distributive approach?

Yes, because they will be irritants to long-term relationship

(Correct)

Yes, because tactical ploys will help to gain insights into the other party's interests

No, because tactical ploys strengthen the other party's position

No, because tactical ploys will be more effective with integrative approach
Explanation
There are many tactics and ploys that can be used to persuade others, particularly those not trained in
negotiation. But in general these tactics should be used with care, as they can backfire; and in situations where a
long-term relationship is desired, they can be, if detected, become an irritant to TOP.

Tactics are particularly effective if and when you are dealing with untrained negotiators, in consumer's buying
situation and in once-off encounter.

LO 3, AC 3.2

Question 14: Correct

IHL has been supplying to XYZ Ltd for months. XYZ Ltd procurement manager Diana realises that the IHL's input
prices are dropping and this is a good time to re-negotiate the price of the contract. She invites IHL
representative to XYZ headquarter to make a bargain on the current price. At the opening stage of the
negotiation, Diana requests a 10% reduction in price with an increase in volume purchased. Is Diana's action
appropriate in the opening phase?

No, because Diana has put the markers down too soon

(Correct)

Yes, because the negotiation should be done as quick as possible

•
 No, because Diana should state exactly the increasing quantity

Yes, because Diana's proposal is a fair trade for both parties

Explanation
The opening stage of the negotiation covers the very first few minutes when the parties meet and greet each
other and are seated in the negotiation room in preparation for the main event.

Typical behaviours at the opening stage: 'dos' and 'don'ts'

Do’s

• Be punctual and well presented (welcome their arrival)

• Break the ice with small talks

• Start the conditioning process

• Check authority

• Check agenda

• Consider using visual aid to set out key objectives or make key points

Don’ts

• Use strong, pushy, cold or tough style at the opening

• Put down marker at this stage

• Criticise other organisations/TOP's previous contacts/third parties.

In this scenario, Diana has made her proposal right at the opening stage. This is an example of 'don'ts'. Good
negotiators are very careful about 'red lines'. If she puts such barrier up too early, the supplier may not try to look
for more creative solutions later in the negotiation.

LO 3, AC 3.1

Question 15: Correct

How contribution is calculated in break-even analysis?

Fixed costs divided by variable costs

Variable costs subtracted from fixed costs

Price minus fixed costs

•
 Variable costs subtracted from price

(Correct)

Explanation
Contribution = Price - Variable cost

Break-even point (volume) = Fixed cost/Contribution

LO 2, AC 2.1

Question 16: Correct

Which of the following are typical characteristics of activity-based costing (ABC) method? Select TWO that apply.

ABC provides the information required to take action and realise improvements

(Correct)

Variable and all related overhead expenses are specifically assigned to a business activity

(Correct)

Costs are allocated based on volume

ABC has tended to over cost products on long runs and under cost those on short runs

Limited understanding of true costs incurred

Explanation
Activity-based costing is an alternative approach to traditional absorption costing. The characteristics of these two
methods are illustrated in the graph below:
LO 2, AC 2.1
Question 17: Correct
A buying organisation with a low spend and the reputation for paying late might be viewed by a supplier as which
of the following?

Develop

Core

Nuisance

(Correct)

Exploit
Explanation
To answer this question, you should know The seller's perspective as in 'How to Negotiate Professionally':
In the scenario, the buyer's spend is low, while they seem unattractive to seller (as they tend to pay late). So the
buyer is classified as Nuisance in seller's perspective.

LO 1, AC 1.3

Question 18: Correct

Which of the following should be adopted to minimise the conflict between parties in commercial negotiation?

Ground zero

Ground beam

The rule of law

Ground rules

(Correct)

Explanation
Ground rules are the basic rules for doing something (Cambridge Dictionary). A negotiation goes more smoothly
if ground rules are adopted. Then if something goes awry at a later time, you can point out the ground rule that
has been violated. Procurement professional should seek to minimise conflict over process through agreeing
'ground rules' and approach as far as possible with the other party in advance of any negotiation meetings.

There should be two sets of ground rules: 1) ground rules for the negotiations between the two parties and 2)
ground rules for the negotiating team itself. This article is about the negotiating team ground rules.
The rule of law is the condition in which all members of society, including its political leaders, accept the
authority of the law

Ground zero describes the point on the Earth's surface closest to a nuclear detonation. In the case of an
explosion above the ground, ground zero refers to the point on the ground directly below the nuclear detonation.

The Ground Beam is the beam which is provided usually at the foundation level to support building walls, joists,
etc.

LO 1, AC 1.1

Question 19: Correct

Which of the following are types of questions that are useful in opening and testing phases of a negotiation?
Select the TWO that apply.

Open

(Correct)

Leading

Probing

(Correct)

Narrow

Closed
Explanation
In the opening phase, parties should confirm understanding and get the issues on the table.

The testing phase is an information gathering stage where the hypothesis and assumption you have made in the
planning stage can be tested or confirmed or disproved.

Opening questions (those that start with 'what', 'how', 'why') are used at the opening and testing stages to
uncover needs and underlying motives, and to allow the buyer to get a feel of what is in store in the negotiation.

Probing questions are also useful to check that the supplier fully understand their offering, as well as your needs,
and can also be used to communicate to the supplier that you know this category well. These questions are
typically useful at the opening and testing stages.

LO 3, AC 3.3

Question 20: Correct

It may be more difficult to buy on a credit from supplier who locates in a country with a hyperinflation? Is this
assumption true?
 •

No, because supplier's bank will take risks from currency fluctuation

Yes, because buyer has more advantage if they make payment in their own currency

No, because the higher the inflation rate, the stronger the supplier's currency

Yes, because the supplier's currency will lose its value overtime

(Correct)

Explanation
If the inflation rate is running high, then obtaining credit as a buyer is normally more difficult or expensive as
money in the future will be worth less than money today.

LO2, AC 2.2

Question 21: Correct

Which of the following may help the procurement professional increase expert power in commercial negotiation?
Select TWO that apply.

Ability to compensation

Official positions

Insights

(Correct)

Personality

Expertise knowledge

(Correct)
Explanation
Expert power is based on a person's high levels of skill and knowledge, formal training, qualifications and
experience in a particular procurement category would give someone expert status and mean that in negotiation
their voice is listened to as a more objective, informed knowledge leader. Expert power is based on facts,
knowledge, research, insight and study.

Legitimate power comes from rules, formal authority, organisation rank, staff rate or official position held.

Reward power comes from one person's ability to compensate or reward another for compliance.

Referent power stems from their personality, way of engaging with others and habit of acting in a way that is in
line with a strong set of values and principles.

LO 1, AC 1.3

Question 22: Correct

Jasmine and the IHL sales team have a negotiation scheduled with one of AB’s lead buyers, Samuel, at AB’s
premises. This is one of the biggest negotiations that Jasmine has been involved in and is eager not to make any
mistakes. Jasmine has heard from a colleague that Samuel tends to adopt an integrative negotiation style. IHL
senior management decides to send a team of three members to the negotiation. Jasmine is among the team
and she is assigned to check body language, reactions, feeds insight to her leader and to record important
comments and information from the meeting for minutes. Which of the following are roles of Jasmine in the
forthcoming negotiation? Select TWO that apply.

Secretary

(Correct)

Technical expert

Commercial expert

Observer

(Correct)

Chief negotiator
Explanation
A negotiating team can be as few as two people, and one person can play one or more of these roles:
As from the scenario, Jasmine will act as an observer and a scribe (or secretary).

LO 2, AC 2.4

Question 23: Incorrect

If the price of a good is above the equilibrium price, which of the following will happen?

There is a surplus (i.e. an excess supply) and the price will rise

(Incorrect)

There is a shortage (i.e. an excess demand) and the price will fall

The quantity demanded is equal to the quantity supplied and the price remains unchanged

There is a surplus (i.e. an excess supply) and the price will fall

(Correct)

Explanation
In microeconomics, equilibrium price is determined when the quantity demanded is equal to the quantity supplied
at equilibrium price in a market, there will be no shortages and no surpluses. If we combine our supply and
demand curves on one graph, the point at which they converge determines the equilibrium price. If the price is
set above this price and you read across the graph you will see the supply excess demand and there will be a
surplus. In order to reduce this surplus, the price will need to fall. The scenario is illustrated in the graph below:

LO 2, AC 2.2
Question 24: Correct
What is the most likely outcome when two organisations with adversarial relationship negotiate with each other?

Lose lose

Win lose

(Correct)

Win win

Deadlocked
Explanation
An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are
available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low
levels of trust are characteristic of adversarial relationships. The outcome when two organisations with
adversarial negotiate is most likely to be win-lose.

Reference:

- Adversarial purchasing - Wikipedia

- CIPS study guide page 32-35

LO 1, AC 1.2

Question 25: Correct

Which of the following is NOT a barrier to entry in a monopolized market?

The costs of production make a single producer more efficient than a large number of producers

The government gives a single firm the exclusive right to produce some good

A single firm is very large

(Correct)

A key resource is owned by a single firm

Explanation
Monopolies exist in many markets in real life for very different reasons:

Ownership of a Key Resource: When one company exerts sole control over a resource that is necessary for
the production of a specific product, the market may become a monopoly. For example, the only medication
deemed acceptable to treat a disease comes from a particular ingredient X, and knowledge of this ingredient X is
owned by a single family owned company. The company can, therefore, be said to have a monopoly over
ingredient X that is needed to cure the disease because it is the only company that can produce a product
deemed acceptable.

Government Franchise: In certain instances, a monopoly may be explicitly created by the government if it
grants a single company, whether private or government-owned, the right to conduct business in a particular
market. For example, when a national railways transportation service is created by the government, in most
cases they are granted a monopoly on the operation of passenger trains in the country. As a result, other firms
are only able to offer passenger train services with the cooperation and/or permission of the government-owned
provider.

Intellectual Property Protection: Extending intellectual property protection to a company in the form of patents
and copyrights is yet another way in which monopolies are created. When a government does this, it is in fact
giving a single company an exclusive right to provide a particular product / service to the market. Patents and
copyrights work in providing owners of intellectual property with the right to act as an exclusive provider of a new
product for a specific length of time. This creates a temporary monopoly in the market with regards to new
products and services.

Natural Monopoly: A market may also become a monopoly simply because it may be more cost-effective for
one company to serve the whole market than to have several smaller firms in competition with one another. A
company with virtually unlimited economies of scale is referred to as a natural monopoly. Such firms become
monopolies due to their position and size, which makes it impossible for new entrants in the market to compete
price-wise. Natural monopolies are common in industries with high fixed costs and low marginal costs of
operation such as providers of television, telephone, and internet services.

In this question, 'A single firm is very large' is not enough to tell whether this market is monopolistic.

LO 2, AC 2.2

Question 26: Correct

According to Dr. Mari Sako, which of the following is potentially the weakest trust to be built?

Competence trust

Charitable trust

Contractual trust

(Correct)

Goodwill trust
Explanation
Trust is the expectation that the other party will behave in a predictable and mutually acceptable way. In inter-firm
relationships, the presence and absence of trust can affect the level of cost in a relationship. The existence of
trust is taught to lower the transaction cost in a relationship. Dr. Mari Sako identified taxonomy of 3 types of trust
in commercial relationship, which is very useful from the perspective of procurement.

- Contractual trust: Trust based on the contract with TOP. This is potentially the weakest source of trust if there is
nothing else to base the trust on, but it is the quickest to establish.

- Competence trust: Trust based on TOP's professional qualifications or proven or certified technical capability or
experience.

- Goodwill trust: Trust based on knowing TOP has your interest at heart and will not behave opportunistically.
This is potentially the strongest type of trust, but it takes the longest time to build.

Otherwise, trust also has legal meaning. A trust is a legal document that can be created during a person's lifetime
and survive the person's death. A trust can also be created by a will and formed after death. Charitable trusts are
trusts which benefit a particular charity or the public in general.

LO 1, AC 1.4

Question 27: Correct

An organisation is developing the specification for a capital purchase project. An important stakeholder has doubt
on the draft specification. The buyer invites him to the product function meetings. In these meeting the attendees
can raise their concerns, the specification development team takes in all the concerns and adjusts the
specification accordingly. What kind of technique is the specification development team using?

•
 Persuasive reasoning

Directive

Coalition

(Correct)

Visionary
Explanation
In the scenario, anyone who has concerns can join a meeting to raise their thoughts. The project team takes the
stakeholders' ideas into account. This is known as coalition: A group of people or organisations come together
and work collaboratively to achieve some goals. Specifically in this scenario, the goal is creating a high-quality
and unified specification for an important project.

Reference:

- CIPS study guide page 164-165

- What Is a Coalition Anyway?

LO 3, AC 3.2