L4M2 Exam Dumps : Defining Business Needs

Explanation

In construction, specifications are written documents that describe the materials and workmanship required for a development. They do not include cost, quantity or drawn information but need to be read alongside other contract documentation such as quantities, schedules and drawings.

Specifications vary considerably depending on the stage to which the design has been developed, ranging from performance (open) specifications that require further design by a contractor or sup-plier, to prescriptive (closed) specifications where the design is already complete when the project is tendered.

Prescriptive specifications give the client more certainty about the end product when they make their final investment decision (i.e. when they appoint the contractor), whereas a performance specification gives the contractor and suppliers more scope to innovate and adopt cost effective methods of work, potentially offering better value for money.

Typically, performance specifications are written on projects that are straight-forward, standard building types, whereas prescriptive specifications are written for more complex buildings, or buildings where the client has requirements that might not be familiar to contractors and where certainty regarding the exact nature of the completed development is more important to the client.

Performance specification has some disadvantages:

- Well-defined performance metrics are needed to ensure that the specified performance will achieve the desired outcome

- Require reliable, practical, economical tests of performance

- Evaluations are subjective and require additional time and effort to complete

Therefore, if a performance specification is used, the buying organisation will have to ensure that they are able to define and conduct tests on whether supplier's solution can deliver the desired out-come.

Comprehensive and Detailed Explanation (paraphrased from CIPS L4M2 content)

CIPS L4M2 explains that direct costs are those that can be directly traced to a specific product, job, or project.

For a decorating contractor:

Paint (A) is clearly a direct cost – it is consumed on specific jobs, and the quantity and cost can be directly allocated to each project.

Items such as:

Ladder (B) – a piece of equipment used across many jobs. Its cost is typically spread over multiple projects; this makes it an indirect (overhead) cost.

Van (C) – used for transport across many contracts, again an indirect or overhead cost.

Electricity (D) – usually treated as an indirect or overhead cost, not allocated to a single job unless specially metered.

Understanding the difference between direct and indirect costs is important for whole-life costing and building a business case, because misclassifying them can distort unit costs and profitability.

Relevant CIPS L4M2 areas:

Cost classification: direct vs indirect, fixed vs variable

Costing and pricing in business cases

Whole-life cost and cost build-up analysis

Explanation

There are three major types of buying situations, which are new purchase, modified rebuy and straight rebuy. Three factors make the buying situations be different from the others, customers may face different problems in these situations.

A new purchase is a situation requiring the purchase of a product for the very first time.

A straight rebuy is when a company places a second order with a supplier that is identical to the first purchase it made.

A modified rebuy is when a company orders again from a supplier, but wants to change some as-pect of the order, such as the quantity, packaging, product features, or delivery times. The scenario above is an example of modified rebuy.