International Project Management Association (IPMA) Practice Exam

Which option is the most important factor to consider in deciding whether to use a fixed-price or a cost-reimbursable contract?

1. How well defined the scope is

2. The expected duration of the project

3. The expected value of the contract

4. Relevant environmental regulations

The correct answer is: How well defined the scope is

The most important factor to consider in deciding between a fixed-price and a cost-reimbursable contract is how well defined the scope of the project is. A well-defined scope provides clarity on the tasks, deliverables, and outcomes expected from the project. In fixed-price contracts, clarity in the scope allows both parties to agree on a price upfront, reducing the risk of unexpected costs later. When the scope is not well defined or is subject to change, a cost-reimbursable contract is often more appropriate, as it allows for flexibility in adjusting the project scope without the risk of financial penalties or disputes arising from price changes. By ensuring that the scope is well defined, project managers can effectively choose the contract type that aligns with the project's complexity, risk management needs, and potential for scope changes, ultimately influencing the success of the project.