Cost, Value and Commercial Relationship Management

Introduction

Supplier relationship management (SRM) becomes commercially consequential when an organisation must decide not merely which supplier offers the lowest price, but which commercial arrangement creates the greatest sustainable value. Price is only one visible element of a supplier relationship. The buyer also bears costs associated with quality failures, expediting, inventory, tooling, transport, administration, switching, disruption, compliance and lifecycle support. At the same time, suppliers require sufficient economic return to invest in capacity, innovation, people, technology and resilience.

Commercial relationship management therefore concerns the design and governance of exchanges between buyer and supplier. It combines cost analysis, value analysis, contract economics, negotiation, performance measurement and relationship governance. The central managerial challenge is to distinguish legitimate cost reduction from value destruction. A reduction in supplier price may be beneficial if it reflects productivity improvement; it may be harmful if it causes underinvestment, quality deterioration or supplier exit.

This chapter develops practical and analytical methods for achieving equitable and sustainable commercial outcomes. It focuses on should-cost analysis, cost breakdowns, total cost models, open-book costing, value engineering, gainsharing and negotiation planning.

Learning Objectives

By the end of this chapter, readers should be able to:

1. Explain the distinction between price, cost, value and total cost of ownership.
2. Construct and critically evaluate a should-cost model.
3. Analyse supplier cost breakdowns and identify cost drivers.
4. Apply total-cost and lifecycle-cost reasoning to sourcing decisions.
5. Design appropriate open-book costing arrangements and safeguards.
6. Use value engineering to improve function per unit of cost.
7. Develop gainsharing mechanisms that are measurable and equitable.
8. Prepare a negotiation plan based on interests, alternatives, evidence and risk.
9. Evaluate ethical, contractual, technological and governance issues in commercial relationships.

1. The Commercial Logic of Supplier Relationships

1.1 Price, cost and value

Price is the amount paid under a transaction or contract. Cost is the economic sacrifice required to produce, deliver, use or dispose of a product or service. Value is the perceived benefit generated for a stakeholder relative to the resources consumed. These concepts are related but not interchangeable.

A buyer may prefer a higher-priced supplier when the supplier offers lower defect rates, shorter replenishment times, superior technical support or lower environmental risk. Conversely, a low quoted price may conceal costly downstream consequences.

A useful conceptual relationship is:

“Total benefits” may include revenue, service performance, avoided disruption and user utility. “Relevant costs” include purchase price and all incremental costs affected by the sourcing decision. The expression is a decision framework rather than an accounting identity; benefits and costs must be defined consistently and measured over the same time horizon.

1.2 Transaction-cost economics and relational exchange

Transaction-cost economics asks why organisations govern some activities through markets, some through contracts and others internally. Important transaction characteristics include asset specificity, uncertainty and frequency. A supplier relationship involving dedicated tooling, confidential designs and high switching costs requires stronger safeguards than a simple spot purchase.

Relational exchange theory adds that repeated commercial interaction is governed not only by formal terms but also by trust, reciprocity, norms and joint problem solving. These perspectives produce an important managerial implication: a contract should be economically coherent with the relationship’s risk and dependence. Aggressive short-term purchasing tactics can be counterproductive in a relationship requiring long-term investment.

1.3 Cost transparency and power

Cost transparency can improve problem solving, but information is not neutral. A buyer with superior information may use it to appropriate all supplier surplus, reducing the supplier’s willingness to disclose data or invest. Commercial governance must therefore address both efficiency and distributive fairness. Fairness does not mean identical margins; it means that returns, risks and responsibilities are allocated in a way that is explainable, contractually supported and compatible with continued performance.

2. Cost Structures and Cost Breakdown Analysis

A cost breakdown separates a supplier’s economics into meaningful drivers. A manufacturing model may contain direct materials, direct labour, manufacturing overhead, logistics, quality, tooling amortisation, engineering, selling and administrative expense, financing effects and profit. A service model may instead contain labour grades, utilisation, software, facilities, subcontracting, travel, management overhead and margin.

A basic unit-cost model can be expressed as:

where C_u is unit cost; C_m material cost per unit; C_l direct labour; C_o operating overhead; C_q quality-related cost; C_log logistics; C_t tooling or engineering allocation; and C_g allocated general and administrative cost. All terms must be measured in the same currency per unit and for the same volume, specification and delivery basis.

This decomposition is useful only if allocation rules are understood. An overhead allocation based on direct labour hours may be misleading in an automated plant. Similarly, a supplier may appear inefficient because common costs have been allocated to a low-volume product. The analyst should distinguish avoidable or incremental costs from allocated costs when assessing a decision.

2.1 Fixed, variable and step costs

Variable costs change approximately with volume within a relevant operating range. Fixed costs do not change in the short term, while step costs change when capacity thresholds are crossed. A more realistic total-cost representation is:

where C(Q) is total cost at volume Q; F is fixed cost; v is variable cost per unit; and S(Q) represents step costs associated with capacity changes. The model is applicable over a specified time period and operating range. It should not be treated as universally linear.

2.2 Cost-driver analysis

The analyst should ask which physical, commercial or organisational factors cause cost to change. Common drivers include material yield, batch size, changeover time, utilisation, order frequency, payment terms, forecast volatility, engineering changes and quality performance. A cost breakdown that lists percentages without identifying causal drivers has limited value for negotiation or improvement.

3. Should-Cost Analysis

Should-cost analysis estimates what a product or service ought reasonably to cost under specified assumptions. It is not a claim about what a supplier actually spends, nor is it automatically a target price. A sound model combines engineering or service-process knowledge, market data, supplier evidence and explicit assumptions.

3.1 Building a should-cost model

A disciplined process includes:

1. Define the scope, specification, volume, currency, Incoterm or delivery basis, quality level and time period.
2. Decompose the product or service into operations, materials and cost drivers.
3. Establish technical quantities, standard times, rates and expected yields.
4. Obtain external evidence such as commodity indices, wage surveys, freight quotations and industry benchmarks.
5. Model overhead, investment, risk and a commercially reasonable return.
6. Test sensitivity to uncertain assumptions.
7. Compare the model with supplier quotations and investigate material variances.

A manufacturing example is:

where SC is should-cost per unit; M_p is material purchase cost; M_q is material quantity adjusted for yield and scrap; L_h is labour hours multiplied by an appropriate labour rate; O_h is operating overhead; Q_c is quality cost; Log is logistics cost; A is an appropriate allocation for tooling, engineering and administration; and R is a reasonable return for capital and risk. The terms must use consistent units and avoid double counting.

For labour, if a process requires 0.40 hours per unit at £24 per hour, labour cost is £9.60 per unit. If material input is 2.5 kg, material price is £4.00 per kg and expected yield is 92%, required purchased material is 2.5 ÷ 0.92 = 2.7174 kg, giving approximately £10.87 material cost. These calculations are meaningful only if the yield definition and process boundary are explicit.

3.2 Worked should-cost example

An illustrative component has the following assumptions per unit:

• Purchased material: £10.87
• Direct labour: £9.60
• Variable manufacturing overhead: £3.20
• Quality and testing: £1.10
• Logistics: £1.25
• Tooling and engineering allocation: £0.80
• General and administrative allocation: £1.50

The estimated cost before supplier return is:

If the agreed commercial return is £2.83 per unit, the indicative should-cost price is £31.15 per unit. The result is not proof that a supplier charging £33.00 is inefficient. The difference may reflect higher wages, a different process, lower volume, investment requirements, warranty exposure or modelling error. The correct response is structured variance analysis, not automatic price rejection.

3.3 Sensitivity and uncertainty

Suppose material represents £10.87 of the model and its price changes by 15%. The absolute impact is:

Thus the unit cost changes by approximately £1.63, before considering any contractual indexation or supplier hedging. Sensitivity analysis identifies which assumptions deserve negotiation attention. Scenario analysis should also test volume, exchange rates, energy, wage rates, yield and capacity utilisation.

4. Total Cost of Ownership and Lifecycle Economics

Total cost of ownership (TCO) broadens the decision beyond the purchase price. A generic model is:

where P is purchase price; C_a acquisition and administration cost; C_q quality and failure cost; C_i inventory and working-capital cost; C_l logistics and handling; C_s service and support; C_r risk or disruption cost; C_d disposal or end-of-life cost; and V_r residual or recovery value. The model is appropriate when comparing alternatives over a defined scope and time horizon. Avoided costs should not be counted twice.

For multi-period decisions, discounted cash flow may be used:

where CF_t is the net cash flow in period t, r is the discount rate per period, and n is the number of periods. The rate and cash flows must use consistent time units. Discounting is less appropriate for very short operational comparisons where timing differences are immaterial, but it is relevant for equipment, maintenance and long-term service contracts.

TCO models should distinguish measurable costs from estimates. A risk cost may be represented as expected loss:

This is a simplifying decision model, not a prediction. It is most useful when probabilities and consequences are supported by historical data, expert assessment or scenario analysis.

5. Open-Book Costing and Commercial Transparency

Open-book costing is an agreed arrangement under which a supplier discloses specified cost and financial information to support pricing, improvement or contract governance. It can range from limited disclosure of indexed materials to detailed access to bills of material, labour standards, overhead policies and audit evidence.

5.1 Design principles

An effective arrangement specifies:

• the purpose and scope of disclosure;
• definitions of allowable and non-allowable costs;
• treatment of shared costs and corporate allocations;
• confidentiality, data security and competition-law safeguards;
• audit rights, notice periods and record retention;
• treatment of errors, overpayments and under-recoveries;
• rules for productivity savings and price resets;
• protection for legitimate supplier intellectual property.

Transparency should be reciprocal where appropriate. Buyers may need to disclose forecast volumes, engineering changes, payment performance and demand assumptions because these influence supplier costs.

5.2 Risks and controls

Open-book models can create administrative burden, expose sensitive information or encourage disputes over allocation. A supplier may also disclose data that is technically accurate but economically unhelpful—for example, a detailed overhead allocation that obscures the incremental cost of an order. Controls include independent audit, standard cost definitions, materiality thresholds, role-based access and a clear dispute process.

Open-book costing is not a substitute for trust. It works best when the parties agree how information will be used and when disclosure produces a reciprocal benefit such as joint productivity investment, fair indexation or faster problem resolution.

6. Value Engineering and Value Analysis

Value engineering is a systematic method for improving value by examining required functions and the resources used to deliver them. Value analysis generally examines an existing product or process; value engineering often applies during design. A commonly used conceptual relationship is:

This ratio is not a universal financial measure. It is a comparative heuristic, and “function” must be defined in terms meaningful to the customer, user, regulator or operation.

A value-engineering study should:

1. Define required primary and secondary functions.
2. Identify the cost of each function or design feature.
3. Generate alternatives without prematurely defending the current design.
4. Evaluate alternatives for performance, safety, quality, regulatory compliance, supply risk and lifecycle cost.
5. Test and implement the preferred option.

For example, replacing a metal bracket with a polymer component may reduce unit cost but increase temperature risk, tooling dependence or end-of-life complexity. Value engineering therefore requires cross-functional participation from design, operations, procurement, quality, sustainability and suppliers.

The distinction between cost reduction and value improvement is important. Cost reduction removes resources; value improvement preserves or increases required function while reducing total cost or improving outcomes. A design change that lowers purchase price but increases maintenance is not necessarily value improvement.

7. Gainsharing and Incentive-Compatible Commercial Models

Gainsharing distributes verified benefits from joint improvement between buyer and supplier. It can motivate investment when neither party would act alone. Typical gains include material yield, labour productivity, reduced scrap, lower logistics cost, energy efficiency, shorter lead time or reduced warranty expense.

A gainsharing plan should define:

• baseline period and baseline performance;
• measurement method and data owner;
• eligible improvement categories;
• gross versus net savings;
• implementation and validation costs;
• allocation percentage and duration;
• treatment of volume, mix, specification and market changes;
• audit and dispute procedures;
• treatment of negative performance or disbenefits.

If baseline cost is £100 per unit and verified cost after improvement is £92, the gross saving is £8 per unit. At 60,000 units, annual gross saving is:

If implementation cost is £80,000, net saving is £400,000. With a 50:50 sharing rule, each party receives £200,000, subject to the contract’s definitions. The calculation assumes volume and specification are comparable and that the measured reduction is not caused by transferring cost elsewhere.

A weak gainsharing scheme rewards only visible price reduction. A stronger scheme measures total economic benefit and protects service, quality, safety and resilience. Baselines must be periodically reviewed, but retrospective changes should not be used opportunistically to confiscate earned benefits.

8. Negotiation Planning for Sustainable Outcomes

Negotiation planning translates cost and value evidence into a disciplined commercial process. It should begin before the meeting, not during it.

8.1 Core planning elements

A graduate-level negotiation plan normally includes:

• objectives and minimum acceptable outcome;
• interests of both parties;
• alternatives if agreement is not reached;
• factual cost and performance evidence;
• issues to trade, sequence and package;
• authority limits and approval requirements;
• likely supplier arguments and responses;
• relationship and implementation risks;
• communication and documentation plan.

The buyer’s best alternative to a negotiated agreement (BATNA) is the most credible course of action if no agreement is reached. A BATNA is not a wish; it must be feasible, costed and time-sensitive. The supplier also has a BATNA, such as serving another customer, reallocating capacity or declining investment. Understanding both alternatives helps prevent unrealistic demands.

8.2 Position, interest and objective

A position is what a party says it wants, such as a 7% price reduction. An interest is why it wants it, such as budget pressure, volume uncertainty or a need to fund a technology transition. An objective is a measurable outcome, such as a three-year TCO reduction with no deterioration in defect rate or delivery reliability.

Negotiators should create packages rather than bargain over one number. For example, a buyer may offer volume visibility, longer contract duration or faster payment in exchange for productivity investment, transparent cost data and a price reduction. The package must be evaluated for total economic effect, not rhetorical attractiveness.

8.3 Concessions and safeguards

Concessions should be conditional, reciprocal and documented. A concession without a return can reset expectations and weaken credibility. Commercial safeguards include indexation formulas, gainshare reviews, service-level credits, change-control rules, audit rights, termination assistance and continuity provisions.

9. Applied Case: Meridian Appliances and the Compressor Relationship

Background

The following is an illustrative case. Meridian Appliances, a regional manufacturer of commercial refrigerators, buys compressors from Northstar Components under a three-year agreement. Northstar proposes a 9% price increase, citing copper, energy and wage inflation. Meridian’s procurement team believes the increase is excessive because the quoted price exceeds its preliminary should-cost estimate.

Problem

Meridian’s initial model shows a current unit price of £118.00 and an indicative should-cost price of £114.50. However, the model uses old labour rates, assumes 95% capacity utilisation and excludes the cost of emergency freight. Northstar reports 3.8% warranty returns, while Meridian’s internal data show that poor installation practices at Meridian’s plants contribute to some failures. A simple price negotiation would therefore risk misunderstanding the economics.

Analysis

A joint team maps the cost structure. Copper accounts for £28 per unit, labour £20, energy and manufacturing overhead £31, logistics £6, quality and warranty £8, engineering allocation £7 and supplier return £18. The parties agree that copper should be indexed to an external reference, but they disagree about overhead allocation and warranty responsibility.

The team develops three scenarios:

Scenario C includes a redesigned mounting interface, improved installation training and a packaging change that reduces damage. Engineering validation estimates £2.40 unit savings, while quality data suggest £1.60 avoidable warranty and handling cost. The redesign requires £180,000 of tooling. At an annual volume of 100,000 units, the undiscounted first-year gross benefit is approximately:

The parties agree to share verified benefits 55% to Meridian and 45% to Northstar for two years, after which the price will be reviewed. Copper is indexed, but labour and overhead changes require open-book evidence and an annual review. Meridian commits to a rolling six-month forecast and improved installation controls.

Outcome

The final arrangement does not achieve the lowest nominal purchase price in the first month. It does, however, reduce expected total cost, creates a mechanism for future productivity and allocates investment risk. Northstar receives a return for engineering effort, while Meridian receives transparency, improved quality and protection against unsupported cost escalation.

Learning points

1. A should-cost model is a starting point for inquiry, not an accusation.
2. Cost and responsibility can be shared across the supply chain.
3. Value engineering is stronger when technical and commercial teams work together.
4. Gainsharing requires a credible baseline and verified measurement.
5. Indexation should reflect genuine cost drivers rather than provide automatic protection for every cost category.

10. Governance, Ethics and Regulation

Commercial cost management raises ethical and legal issues. Buyers should not demand confidential competitor information, misrepresent volumes or use supplier data outside agreed purposes. Suppliers should not manipulate cost records, conceal rebates, transfer costs to affiliates or claim savings that reduce quality or safety.

Competition law may restrict information exchange, especially where suppliers compete with one another or where detailed cost data could facilitate collusion. Procurement professionals should consult legal specialists regarding information barriers, benchmarking and consortium arrangements.

Contract governance should address anti-bribery controls, sanctions, modern slavery, environmental obligations, tax compliance, data protection, audit rights and records retention. Sustainability claims also require care: a cheaper material is not a value improvement if it shifts environmental harm, unsafe labour or disposal cost to another stage of the lifecycle.

11. Digital Tools, Analytics and AI

Digital procurement platforms can connect bills of material, commodity indices, freight rates, quality records and supplier performance data. Cost models can then be refreshed more frequently and exceptions prioritised. Process mining may reveal excessive approvals, batch sizes or changeovers that contribute to cost.

AI can assist with document extraction, anomaly detection, scenario generation and comparison of supplier quotations. Its outputs should be treated as decision support. Risks include poor training data, hidden assumptions, fabricated evidence, model bias and disclosure of confidential supplier information. Governance should require traceable data sources, human review, access controls, model validation and a record of assumptions used in commercial decisions.

12. Limitations and Best Practices

No cost model perfectly represents reality. Suppliers may have different accounting systems, capacity constraints and risk profiles. Market prices can change faster than contracts. Benefits may be difficult to attribute when several initiatives occur simultaneously. TCO estimates may create false precision, particularly for disruption probability and reputational effects.

Best practice is therefore to:

• define boundaries and assumptions before calculating;
• use ranges and scenarios rather than a single point estimate;
• separate facts, estimates and judgements;
• validate models with engineering, finance, operations and suppliers;
• test sensitivity to major drivers;
• protect confidential information;
• link price changes to evidence and causal drivers;
• measure quality, service, resilience and sustainability alongside cost;
• document baselines and decision rights;
• review outcomes after implementation.

The most mature commercial relationship is neither a passive price-taking arrangement nor an attempt to extract every available supplier margin. It is a governed system in which the parties identify drivers, improve the economics of the work and allocate gains and risks transparently.

Chapter Summary

Commercial relationship management integrates cost analysis, value creation and negotiation governance. Price should be evaluated alongside total cost of ownership, lifecycle performance, risk and strategic value. Cost breakdowns become useful when they identify causal drivers rather than merely presenting percentages. Should-cost models provide an evidence-based estimate of efficient cost, but their conclusions depend on scope, assumptions, technical data and appropriate returns.

Open-book costing can support fair indexation, audit and joint improvement when disclosure purposes, data definitions and confidentiality safeguards are explicit. Value engineering seeks better function-to-cost outcomes and requires cross-functional assessment of quality, safety, sustainability and lifecycle effects. Gainsharing aligns incentives by distributing verified benefits, but it depends on credible baselines, valid measurement and protection against cost shifting.

Negotiation planning should incorporate interests, BATNAs, evidence, packages, conditional concessions and implementation safeguards. Ethical and regulatory governance is essential because cost transparency, supplier power and data use can create significant risks. Digital tools and AI can improve analysis, but they require human judgement and controls. Sustainable commercial outcomes arise when buyers and suppliers jointly improve the system rather than treating price reduction as the sole measure of success.

Key Terms

Should-cost analysis: An estimate of what a product or service should reasonably cost under stated assumptions.

Cost breakdown: A structured decomposition of total cost into materials, labour, overhead, logistics, quality and other elements.

Cost driver: A factor that causes a cost to change.

Total cost of ownership: The full set of acquisition, operating, quality, risk, support and disposal costs associated with an option.

Lifecycle cost: Cost incurred across the complete life of an asset, product or service.

Open-book costing: Contractual disclosure of specified supplier cost and financial information.

Value engineering: A systematic method for improving required function relative to resource consumption.

Value analysis: Examination of an existing product or process to improve its function-to-cost relationship.

Gainsharing: Distribution of verified improvement benefits between collaborating parties.

Baseline: The agreed reference performance or cost against which improvement is measured.

Cost allocation: Assignment of shared or indirect costs to products, services or customers.

Fixed cost: Cost that does not change in the short term within a relevant operating range.

Variable cost: Cost that changes with activity or output within a relevant range.

Step cost: Cost that changes when capacity or activity crosses a threshold.

BATNA: Best alternative to a negotiated agreement.

Indexation: Contractual adjustment of price using an agreed external index or cost reference.

TCO: Abbreviation for total cost of ownership.

Commercial governance: Structures, controls and decision rights used to manage economic performance and contractual behaviour.

Review Questions

5 Short Answer Questions

1. Distinguish between price, cost and value in a supplier relationship.
2. What is the purpose of a should-cost model?
3. Identify four categories commonly included in a total-cost-of-ownership model.
4. Why must a gainsharing agreement define a baseline?
5. State two safeguards that should be included in an open-book costing arrangement.

5 Long Answer Questions

1. Explain how transaction-cost economics and relational exchange theory contribute to the design of supplier commercial relationships.
2. Describe the process of constructing a should-cost model and discuss the limitations of relying on it in negotiation.
3. Compare conventional cost reduction with value engineering, using an example to show how a low purchase price may reduce total value.
4. Evaluate the benefits and risks of open-book costing for both buyers and suppliers.
5. Explain how a negotiation plan can convert cost analysis into a sustainable commercial agreement.

3 Analytical / Application Questions

1. A supplier’s quoted price is 12% above the buyer’s should-cost estimate. Develop an analytical process for determining whether the difference reflects inefficiency, risk, specification, volume or model error.
2. Design a gainsharing mechanism for a supplier-led logistics improvement. Specify the baseline, eligible savings, measurement rules, allocation, audit rights and protections against service deterioration.
3. Compare two suppliers using a TCO model that includes purchase price, quality, inventory, logistics, disruption risk and disposal cost. Explain how you would communicate uncertainty and avoid false precision in the recommendation.

Multiple Choice Questions with Answers

Question 1

Which statement best distinguishes should-cost analysis from a supplier quotation?

A. Should-cost analysis is the legally binding price in every contract.

B. Should-cost analysis estimates reasonable cost under stated assumptions.

C. Should-cost analysis measures only the supplier’s accounting profit.

D. Should-cost analysis excludes technical and volume assumptions.

Correct Answer: B. Should-cost analysis estimates reasonable cost under stated assumptions.

Question 2

If material input is 2.5 kg, expected yield is 92%, and material price is £4 per kg, what is the approximate material cost per finished unit?

A. £9.20

B. £10.00

C. £10.87

D. £11.50

Correct Answer: C. £10.87

Question 3

Which item is most clearly a total-cost-of-ownership component rather than merely purchase price?

A. Supplier logo design

B. Warranty and failure cost

C. Buyer’s negotiation preference

D. Unrelated corporate revenue

Correct Answer: B. Warranty and failure cost

Question 4

What is the principal purpose of a cost driver analysis?

A. To identify factors that cause costs to change

B. To eliminate all supplier profit

C. To replace technical specifications with estimates

D. To guarantee a single correct market price

Correct Answer: A. To identify factors that cause costs to change

Question 5

Which condition most strengthens an open-book costing arrangement?

A. Unlimited disclosure with no confidentiality rules

B. Undefined cost categories and informal reviews

C. Clear scope, cost definitions, audit rights and data safeguards

D. A requirement that the supplier disclose competitor quotations

Correct Answer: C. Clear scope, cost definitions, audit rights and data safeguards

Question 6

Value engineering primarily seeks to:

A. Reduce every component to its lowest possible price

B. Improve required function relative to resource consumption

C. Transfer all design responsibility to procurement

D. Increase specification complexity regardless of need

Correct Answer: B. Improve required function relative to resource consumption

Question 7

A verified improvement saves £8 per unit at 60,000 units, with £80,000 implementation cost. What is the net saving?

A. £320,000

B. £400,000

C. £480,000

D. £560,000

Correct Answer: B. £400,000

Question 8

Which feature is essential to a credible gainsharing plan?

A. An unchangeable price regardless of performance

B. A defined baseline and measurement method

C. A prohibition on supplier improvement proposals

D. A guarantee that the buyer receives all savings

Correct Answer: B. A defined baseline and measurement method

Question 9

What does BATNA represent in negotiation planning?

A. The buyer’s initial opening price

B. The best alternative if no negotiated agreement is reached

C. The supplier’s accounting cost allocation

D. The agreed gainsharing percentage

Correct Answer: B. The best alternative if no negotiated agreement is reached

Question 10

Why should a buyer avoid treating a should-cost estimate as automatic proof of supplier overpricing?

A. The estimate may omit valid differences in risk, capacity, process or assumptions.

B. Should-cost models always use incorrect arithmetic.

C. Supplier prices are never affected by cost drivers.

D. Cost analysis is prohibited in commercial negotiations.

Correct Answer: A. The estimate may omit valid differences in risk, capacity, process or assumptions.