CIPS L4M5 Commercial Negotiation Online Training
CIPS L4M5 Online Training
The questions for L4M5 were last updated at Feb 05,2025.
- Exam Code: L4M5
- Exam Name: Commercial Negotiation
- Certification Provider: CIPS
- Latest update: Feb 05,2025
Question #11
When is the best time in procurement process in which procurement should get involved so that the cost-saving opportunities are the greatest?
- A . Market consult stage
- B . Post-contract stage
- C . Specification stage
- D . Post-tender stage
Correct Answer: C
C
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 ofthe procurement process effectively ties their hands and limits their negotiation leverage.
This is illustrated in the graph below:
C
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 ofthe procurement process effectively ties their hands and limits their negotiation leverage.
This is illustrated in the graph below:
Chart
Description automatically generated
LO 2, AC 2.1
Question #12
Which of the following are most likely to be direct costs of a steel manufacturer? Select THREE that apply.
- A . Cleaning services
- B . Coal
- C . Seniormanagement salary
- D . Insurance for production lines
- E . Scrap metal
- F . Hourly production wages
Correct Answer: B,E,F
B,E,F
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
B,E,F
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
Question #13
Which of the following are macroeconomic factors that may have influence to the commercial negotiation? Select TWO that apply
- A . Equilibrium price
- B . Supply curve
- C . Unemployment rate
- D . Bargaining power of supplier
- E . Rising import tariffs
Correct Answer: C,E
C,E
Explanation:
There are many macro economic factors that could influence procurement in general and commercial negotiation in particular.
Below are six factors that are agreed to be fairly significant:
• Economy growth rate
• Inflation rates
• Interest rates
• Currency exchange rate
• Unemployment rate
• Protectionism
LO 2, AC 2.2
C,E
Explanation:
There are many macro economic factors that could influence procurement in general and commercial negotiation in particular.
Below are six factors that are agreed to be fairly significant:
• Economy growth rate
• Inflation rates
• Interest rates
• Currency exchange rate
• Unemployment rate
• Protectionism
LO 2, AC 2.2
Question #14
Which of the following will help to indicate personality preferences in four dimensions?
- A . Thomas-Kilmann Conflict Resolution model
- B . Intelligence quotient
- C . Mill’s RESPECT mnemonic
- D . Myers-Briggs Type Indicator
Correct Answer: D
D
Explanation:
The MyersCBriggs Type Indicator (MBTI) is an introspective self-report questionnaire indicating differing psychological preferences in how people perceive the world and make decisions. MBTI indicates personality preferences in four dimensions.
The ThomasCKilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual’s response to conflict situations.
Mill’s RESPECT mnemonic is set out by Harry A. Mills which describes seven steps to agreements
An intelligence quotient (IQ) is a total score derived from a set of standardized tests designed to assess human intelligence.
D
Explanation:
The MyersCBriggs Type Indicator (MBTI) is an introspective self-report questionnaire indicating differing psychological preferences in how people perceive the world and make decisions. MBTI indicates personality preferences in four dimensions.
The ThomasCKilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual’s response to conflict situations.
Mill’s RESPECT mnemonic is set out by Harry A. Mills which describes seven steps to agreements
An intelligence quotient (IQ) is a total score derived from a set of standardized tests designed to assess human intelligence.
Question #15
Which of the following will positively affect reputational strength of an organisation? Select TWO that apply.
- A . Adopting out-of-date technology
- B . Weak internal coordination
- C . Great gap between reputation and reality
- D . High ethical standards
- E . Strong customer focus
Correct Answer: D,E
D,E
Explanation:
In a globalisedcommercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset.
Reputational strength in one organisation might be based on some or all of the following characteristics:
– Quality of products or services
– Low cost/high value for money
– High ethical standards
– Reliability
– Cutting-edge technology
– Strong customer focus
– Engineering excellence
LO 1, AC 1.4
D,E
Explanation:
In a globalisedcommercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset.
Reputational strength in one organisation might be based on some or all of the following characteristics:
– Quality of products or services
– Low cost/high value for money
– High ethical standards
– Reliability
– Cutting-edge technology
– Strong customer focus
– Engineering excellence
LO 1, AC 1.4
Question #16
In a commercial negotiation, a procurement professional believe that the larger the order quantity from buyer, the lower the supplier’s average costs. Is this assumption true?
- A . No, because supplier’s average costs will rise as the buyer’s demand increases
- B . No, because the supplier may need to invest in new facility to meet buyer’s demand
- C . Yes, because larger order quantity will bring a considerable profit to supplier
- D . Yes, because larger order quantity will always enable the supplier to reach its economy of scale
Correct Answer: B
B
Explanation:
In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting atquieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor’s average costs will be higher at low and high capacity utilisation.
B
Explanation:
In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting atquieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor’s average costs will be higher at low and high capacity utilisation.
A picture containing graphical user interface
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Question #17
Which of the following are behaviours that builds trust between the buyer and the supplier in business relationship? Select TWO that apply.
- A . Conducting transparent procurement process
- B . Over-inflated contingency funds
- C . Allowing supplier to involve in early product development
- D . Commercial espionage
- E . Tendency to blame other party
Correct Answer: A,C
A,C
Explanation:
Trust-building behaviours are as following:
Joint-effort issue resolution
Open sharing of information
Open and honest discussion on root cause of failures
Joint planning focusing on value for money and risk sharing
Commercial transparency and co-proposition of cost reduction and service improvement programmes
Joint recognition and celebration of successes
A,C
Explanation:
Trust-building behaviours are as following:
Joint-effort issue resolution
Open sharing of information
Open and honest discussion on root cause of failures
Joint planning focusing on value for money and risk sharing
Commercial transparency and co-proposition of cost reduction and service improvement programmes
Joint recognition and celebration of successes
Question #18
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?
- A . Engage and keep them satisfied
- B . Engage and consult with them regularly
- C . Keep these people inform through general communication media
- D . Manage them closely
Correct Answer: A
A
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:
A
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:
Table
Description automatically generated
LO 1, AC 1.1
Question #19
A negotiation is coming to the end. Both parties haven’t had any official commitments. Right before leaving the room, the buyer strongly disagrees with supplier’s set up prices and requests a discount. The supplier doesn’t reply but nods and smiles.
Can the buyer consider these actions as an acceptance?
- A . Yes, because smiling shows supplier’s readiness in signing the deal off
- B . No, because nodding and smiling are etiquette of polite rejection
- C . No, because nodding and smiling are not clear signs of neither acceptance nor rejection
- D . Yes, because negotiator should rely on non-verbal communications only
Correct Answer: C
C
Explanation:
Good negotiators are attuned to all stimuli and not just the verbal and written information exchanged. Tone of voice, body language, facial expressions and other clues from TOP are noticed, and with experience and knowledge, interpreted correctly. This interpretation may also involve knowledge of culture norms and values. A smile, a ‘yes’ and the type of hospitality received, (in the business context), can mean very different things in different international business cultures.
Trained negotiators will consider non-verbal communication (such as nodding and smiling)
and body language as one source of signal from TOP, but will rarely rely wholly on this as a guide to what TOP is thinking or feeling. Furthermore, international and regional cultural considerations must be included here to avoid errors in interpretation. Emotional intelligence also has an important role in forming a more holistic perspective of what TOP may be thinking or feeling.
C
Explanation:
Good negotiators are attuned to all stimuli and not just the verbal and written information exchanged. Tone of voice, body language, facial expressions and other clues from TOP are noticed, and with experience and knowledge, interpreted correctly. This interpretation may also involve knowledge of culture norms and values. A smile, a ‘yes’ and the type of hospitality received, (in the business context), can mean very different things in different international business cultures.
Trained negotiators will consider non-verbal communication (such as nodding and smiling)
and body language as one source of signal from TOP, but will rarely rely wholly on this as a guide to what TOP is thinking or feeling. Furthermore, international and regional cultural considerations must be included here to avoid errors in interpretation. Emotional intelligence also has an important role in forming a more holistic perspective of what TOP may be thinking or feeling.
Question #20
Which of the following are recognised techniques in contract negotiation? Select THREE that apply.
- A . Framing and reframing
- B . Ratification
- C . Pacing and leading
- D . Validation
- E . Role ethics
- F . Anchoring
Correct Answer: A,C,F
A,C,F
Explanation:
The question asks about negotiation techniques which are not present in the book.
In this question, there are only 3 recognised techniques:
– Framing and reframing: A frame is an assumption, or set of assumptions, that guides our attention and behavior. Reframing is the ability to identify and significantly change assumptions or perspectives. Framing has a significant impact on the effectiveness of negotiation outcomes and negotiator working relationships. You can read more on framing and reframing here.
– Anchoring: Anchoring bias is well-known cognitive bias in negotiation and in other
contexts. The anchoring bias describes the common tendency to give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point, or the “anchor.” We even fixate on anchors when we know they are irrelevant to the discussion at hand. You can read more on anchoring here.
– Pacing and leading: Pacing and leading is a two-step lever of persuasion. First C You “match your pace” to the person you want to influence in as many ways as possible. You can do this by mimicking the way the person talks, stands, their appearance, etc. You can also mimic less tangible aspects like the way they act, or their emotional state. Second C Once you’ve set your pace with someone, lead them to whatever decision or behavior you
want them to take! You can read more on pacing and leading here.
Reference: CIPS study guide page 163-165
LO 3, AC 3.2
A,C,F
Explanation:
The question asks about negotiation techniques which are not present in the book.
In this question, there are only 3 recognised techniques:
– Framing and reframing: A frame is an assumption, or set of assumptions, that guides our attention and behavior. Reframing is the ability to identify and significantly change assumptions or perspectives. Framing has a significant impact on the effectiveness of negotiation outcomes and negotiator working relationships. You can read more on framing and reframing here.
– Anchoring: Anchoring bias is well-known cognitive bias in negotiation and in other
contexts. The anchoring bias describes the common tendency to give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point, or the “anchor.” We even fixate on anchors when we know they are irrelevant to the discussion at hand. You can read more on anchoring here.
– Pacing and leading: Pacing and leading is a two-step lever of persuasion. First C You “match your pace” to the person you want to influence in as many ways as possible. You can do this by mimicking the way the person talks, stands, their appearance, etc. You can also mimic less tangible aspects like the way they act, or their emotional state. Second C Once you’ve set your pace with someone, lead them to whatever decision or behavior you
want them to take! You can read more on pacing and leading here.
Reference: CIPS study guide page 163-165
LO 3, AC 3.2
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