CAPM - Predictive, Plan-Based Methodologies (17% of the exam) - Section 2.3

Apply cost, quality, risk, and procurement planning in a plan-based project, including cost baselines, risk responses, and contract types.

Estimate costs and establish a cost baseline, plan quality assurance and control, and identify, analyse, and plan responses to risks using strategies such as avoid, transfer, mitigate, and accept. Recognise the main procurement contract types - fixed-price, cost-reimbursable, and time-and-materials - and how each allocates cost risk between buyer and seller.

Cost baselineQuality managementRisk responsesContract typesProcurement

Practice question for this objective

Free samplePredictive, Plan-Based Methodologiesmedium

The Harbour Rail depot upgrade has a scope of work that is well defined and unlikely to change. The buyer wants to hand the cost overrun risk to the supplier so that the price the depot pays is locked regardless of the supplier's actual costs. Which contract type best achieves this?

ACost-plus-fixed-fee, because the supplier recovers all allowable costs and a set fee, giving the buyer a predictable total.
BFirm fixed price, because the price is set at the outset and the supplier absorbs any cost above that figure. Correct
CTime and materials, because the agreed hourly rates cap what the supplier can charge the depot for the work.
DCost-plus-incentive-fee, because the incentive formula rewards the supplier for staying below target and protects the buyer's budget.

A fixed-price contract places cost overrun risk on the seller, while cost-reimbursable contracts leave that risk with the buyer. Under a firm fixed price the buyer's obligation is capped at the agreed figure, so the seller carries any cost above the price. Cost-reimbursable and time and materials arrangements reimburse actual costs, keeping the overrun risk with the buyer.

Why A is wrong: This is tempting because the fee is fixed, but under any cost-reimbursable contract the buyer still pays the supplier's actual costs, so the cost overrun risk sits with the buyer, not the supplier.

Why B is correct: A firm fixed price locks the buyer's payment, so if the supplier's costs exceed the agreed price the supplier bears the loss, which places the cost overrun risk on the seller as required.

Why C is wrong: Rates are agreed but hours and quantities are not, so the final price rises with the effort the supplier expends, leaving the buyer exposed to overruns rather than transferring that risk.

Why D is wrong: The incentive shares savings and overruns between the parties, so the buyer still funds actual costs and carries part of the overrun risk rather than transferring it fully to the supplier.

See more CAPM practice questions, answers explained.

Exam traps in Predictive, Plan-Based Methodologies

Answers that look right on this material and are not. Each one is a distractor from a different question in the CAPM bank for this domain.

Cost plus fixed fee, where the buyer reimburses the seller's allowable costs and pays a fixed fee on top
Why it is wrong: This is tempting because the fixed fee sounds like a capped payment, but under a cost-reimbursable arrangement the buyer still pays the actual costs, so the overrun risk sits with the buyer, not the seller.
Management reserve, because it covers unforeseen work outside the scope baseline and needs sponsor approval before it can be spent.
Why it is wrong: Management reserve is tempting, but it addresses unknown risks, sits outside the cost baseline, and needs approval to release, unlike the fund described here.
Cost plus fixed fee, because the buyer reimburses the seller's actual costs and adds a set fee regardless of the final total.
Why it is wrong: Cost plus contracts look tempting when scope is defined, but the buyer reimburses actual costs here, so the buyer rather than the seller carries the overrun.

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