Risk

Submitted by vijjay on Tue, 01/12/2010 - 16:42

187. A project manager discovers that there is a part of the project that contains some risk. His or her strategy with this risk is to subcontract the work to an outside supplier by using a firm fixed-price contract. Which of the following is true?
a. The supplier will include an allowance for the risk in the contracted price
b. The supplier will lose money on the contract
c. The project manager will have to compensate the supplier if the risk occurs
d. The project manager will assist the supplier with the project team if the risk occurs

-->Answer for this is given as 'a' with one of the site. Explanation was not there.

I feel answer is d. Understanding is, Firm fixed-price contract is not adding any value to drive towards answer and more important, the question doest mention that risk is negative or positive risk.

if any one can guide?

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admin

Wed, 01/13/2010 - 04:28

Since the risk is already know and the reason for outsourcing is to trasnfer the risk the supplier can include an allowance in the contract price. This also happens in real world. Yes a tricky question, but that is acceptable way of working.

vijjay

Wed, 01/13/2010 - 15:23

Hi Admin,
I understand. My point is - risk may be opportunity. For which supplier may not exclusively include allowance. It may be sharing risk. Hence - a. (The supplier will include an allowance for the risk in the contracted price.) may not be always true.
But irrespective of outsourced risk opportunity or threat d (The project manager will assist the supplier with the project team if the risk occurs) is true. Hence I am favoring d.

ChandraR

Wed, 01/13/2010 - 15:34

Hi Vijay!

As far as PMP is concerned, first follow PMIisms.  Also the PM assistance is secondary - an after risk occurence.  We have to select the First Best scenario to address the issue.  There is a known risk.  SOP, scope, procurement documents etc detail the expected deliverables.  The risk is not hidden and the supplier knows it upfront.  So 'A' is the first and foremost thing in the case.

 

Chandra

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admin

Wed, 01/13/2010 - 15:49

Agree with Chandra. Selecting best answer is one thing, Moreover if you think about it , its not even practical to assist the supplier with project team, since if he had expertise he would not be outsourcing to supplier in first place.

A is the best way and its done by companies who have solid project management practices.

vijjay

Thu, 01/14/2010 - 04:14

i got it. thanks chnadra and admin