Introduction
When faced with many options, exercising good judgement on what contract suits the business could be a challenge. There is a need to fully understand each of the choices, the cost, benefits, and risks involved for the individual or company to make the right decision (Morpus, 2021). This can be done perfectly by the use of weighted average techniques that weigh certain choices such as prioritizing project actions and the development of product features (Morpus, 2021). It helps create preference during the planning phase of the contract. Weighting average criteria usually give insight into the overall product value and should be simple, customized, and produce results that are easy to understand (Weller, 2021). The cost should always have a larger weighting because it assist the buyer to compare the price of the product against the benefits if purchased (Thompson, 2019). Therefore, the organization will be able to make informed decision and sanction its purchase should the gain outweighs the commodity valuation. This essay will discuss how the weighting average criteria could be used to select the best contract types’ option for a twelve-cell computer battery product.
Creating Weighting Average Section Criteria
In most cases, cost, time, risk levels, quality, return on investment, and effort are the weighting average criteria for projects or products. It is important to create a holistic view of the process when choosing the formula to use (Weller, 2021). This only requires listing the option to include in the product without regard to their difficulty, priority, or any other factors (Morpus, 2021). Additionally, there is the need to keep the options simple and have five or less weighting criteria. The management should assign weights proportionate to every criterion based on the importance or usefulness attached to each one of them because some could be useful than others.
Rationale for the Chosen Weighting Criteria
The criteria selected should consider the cost of the product in terms of whether the customer could afford to buy a twelve-cell computer battery or if it is expensive. The time the battery will take before it is charged again is another key to why time is very important (Morpus, 2021). Risks involved or associated with the battery must be evaluated to reduce or eliminate any future problems. In addition, the quality of the product is another necessary consideration; the manager must assess whether the product has an excellent quality or not (Morpus, 2021). There is the need to evaluate the return on investment, so as to determine if is worth spending the money in the long run. Further, the team should review the effort to know the number of workers required.
Weight Values to the Criteria
This involves assigning each criterion a weight according to its level of importance and usefulness varies. Therefore, they are given values in terms of percentages with the cost of the battery taking 40%, time 12%, quality 12%, return on investment 12%, and effort 12%. This gives the cost more power to sway the overall score because it will determine the gross sales price at which the customers will buy the product (Morpus, 2021). The product cost can either lure the customers to buy it or look for other options. In terms of the economy, the cost will assist when estimating the net profit or net loss on product sales (Soni, 2021). It will enable the company set the maximum retail price for the battery. Thus, the cost is a vital determinant in controlling market flow.
Weighted Criteria Matrix
The next step after getting the options, criteria, and weights involves creating a weighted matrix. This is a decision-making tool that assesses the choices against a list of factors, and it helps in deciding the best optimal solution (Morpus, 2021). All criteria are weighted relative to their importance and choices give scores against each criterion. For effective communication, the matrix is usually presented as a table or a chart with multiple options listed across the top and criteria. The weighted criteria matrix for a twelve-cell computer battery product is shown in the chart below. In terms of priorities based on the weighting scores, the order of importance from this chart is option1=3.16, option3=3.08, option4=2.8, option2=2.68, and option5=2.04 respectively.
Figure 1: Weighted Criteria Matrix Chart
Types of Contracts
A contract is an accord between two parties which legally protects both of them involved in a potential business deal and determines the responsibilities of each entity. It is important to pick what will enable the organization to maximize contract performance and compliance. In the case of a twelve-cell battery, Unit price was selected because it gives the buyer the opportunity to bargain before deciding to purchase the product (Novak, 2020). Secondly purchase order contract was chosen due to the fact that the buying entity could order the product in advance before paying (McGee, n.d.). Additionally, bilateral agreement as the third type gives the purchaser the surety that the seller will deliver a quality product
Four Basic Requirements in the Contract
The basic prerequisite for a contract is a consideration, offer and acceptance, legal purpose, and mutual assent. Firstly, there is the value that makes the parties engage in a contract by agreeing to provide one another with some product of value (“UpCouncel,” 2022). In this case, for example, the seller will agree to furnish the buyer with an item for a certain amount of money. Time, terms of payment, and other factors are all considered and are necessary for a contract to be seen to be feasible.
Secondly, an agreement must have a valid, understandable, and specific offer which should be accepted in brief but clear and accurate. Thirdly, there must be a legal purpose that does not contravene or break the law and should meet all the needs of both implied and express statutory legality (“UpCouncel,” 2022). Lastly, each entity in the contract has to mutually agree with terms and conditions that are binding them through formal assent. The contract should have a statements of the reason for the agreement, commitments of the entities, evidence, and meaning of terms (“UpCouncel,” 2022). These are the principles that will guide the organization in choosing the types of contracts for the product.
Unit Price Contract
In this type of contract, the total price is anchored on all the units that make up the whole product. The seller normally presents the buyer with a pre-determined price for every part of the item and cumulative total cost and they will agree on the final price (Novak, 2020). Product cost is calculated in units that are either based on time, materials, or a combination of both. Estimates can be negotiated, however, the number of units is specified at the start of product manufacturing (Novak, 2020). Unit price agreements are easy to understand and accord the buyer the opportunity to compare and benchmark prices with other sellers before making the final decision. Further, it can be beneficial for the seller because it largely removes the risk of inaccurate estimation of uncertain quantities. This contract will benefit the organization intending to buy a twelve-cell computer battery as they can navigate the market and gauge the difference with other producers or retailers before making a decision.
Purchase Order Contract
Purchase order is a contract between a buyer and a seller where the former commits to buying items at a certain price, with agreed-upon payment terms and delivery date. It is a legal document created by the customer and presented to the owner of the product detailing a list of what they want to buy, their quantities, and payment terms. Purchase orders agreements are very important because they help to avert conflicts in the supply chain process (McGee, n.d.). By submitting an order, the buying entity is committing to procure the product at a specific amount and it gives the selling entity insurance against non-payment. Additionally, a buyer can create special orders for large shipments and it allows buying of the same product many times while using the same purchase order number (McGee, n.d.). They are useful for tracking inventory and purchase history and the buyer can actually order the good in advance without paying straight away (McGee, n.d.). On the other hand, the contract commits the client to pay once the order is delivered and this gives the owner legal security.
Bilateral Contract
This contract is characterized by an exchange of promises by both parties to carry out certain duties or actions. Assurance from one entity acts as the consideration of the other in the agreement and vice versa (Novak, 2020). The individuals involved assume the responsibilities of the obligor and obligee, so they have contractual roles to do and they both expect value out of it. It is common in sales deals and in this case, fits well the twelve-cell battery product, where the seller promises to deliver the solution at a price (Novak, 2020). In cases where the buying party or the selling entity fails to fulfil their part of the contract, then a breach of agreement ensues. The contract is premised on the seller delivering the quality commodity and the buyer paying the specific agreed amount of money. This type of contract would make an organization buy goods at lower prices because in some scenarios, commodities may be expensive if purchased without formal agreement. Further, it increases co-operation between parties through acceptance as the offeree must make the promise requested by the offeror.
Communicating Contracts
These three agreement types would serve any organization that wants to purchase a twelve-cell battery product very well. To effectively communicate the contracts, they must be in writing even if the law does not require it to be so because oral consents are very difficult to enforce in case of arbitrations (Laurence, 2022). In addition, It should be short, simple, and with clear sentences. The entities or individuals in the deal must use their correct and legal names for clarity on who is responsible to carry out each obligation under the contract (Laurence, 2022). Within the contract, there should be a spelled out procedure for resolving disputes or if something goes wrong. It should clearly specify who pays whom when the payment should be settled, and the terms for making the remittance. Finally, the contract must remain confidential and all parties must mutually agree not to disclose any business information it learns of while executing the contract.
Conclusion
When faced with many options making the right decision on what contract suits your business could be a challenge and understanding the choices such as costs, benefits, and risks involved are important in project management. Weighting average could assist the managers in prioritizing project actions and the development of product features. Thus, weight values should be assigned to each criterion in the form of proportions because they cannot be the same as some useful than others. In this paper, the weights were set based on the level of importance with cost taking the highest percentage, while time, quality, return on investment, and effort was given the same level of importance and all are displayed in a weighted matric criteria chart.
The second phase involved the selection of the contract based on the prerequisite need of consideration, offer and acceptance, legal purpose, and mutual assent. This led to the selection of unit cost, purchase order, and bilateral types. Further, for effective communications of the agreements, it must be in writing, short, clear, and has clarity on the responsibilities and obligations of the parties involved. Lastly, the contracts must have mechanisms for resolving disputes, and settling payments, and should be confidential with a mutual agreement not to disclose any business information to third parties.
References
Laurence, B. K. (2022). Ten Tips for making solid business agreements and contracts. Web.
McGee, L. (n.d.). What is a purchase order & how does it work. Sumup Business Guide. Web.
Morpus, N. (2021). A step-by-step guide for using a weighted scoring model. The Blueprint. Web.
Novak, C. (2020). Every type of Contract you could ever possibly encounter. Learn Hub. Web.
Soni, P. (2021). Cost of production – meaning, types, how to calculate. Analytic Steps. Web.
Thompson, J. (2019). What makes cost benefit analysis important? Chron. Web.
UpCouncel. (2022). Requirements of a contract: Everything you need to know. Web.
Weller, J. (2021). Everything you need to know about scoring models in project management. Smart Sheet. Web.