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A fixed fee project that runs over, and how value based pricing compares

You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.

Case timer

00:00

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

Cedarway Consulting (fictional) agreed a fixed fee of USD 600,000 to redesign a Saudi retailer's buying process. It planned 2,000 team hours at a cost of USD 150 per hour (pay and benefits). The work took 25 percent more hours than planned. What was the planned margin, and the margin after the overrun? An alternative offer was 10 percent of the first year's savings, which turned out to be USD 8 million. Compare.

2. Answers to clarifying questions

This case has no scripted clarifying answers. Answer from the prompt, and say "assume what you think is reasonable" if the prompt does not cover it.

3. A model structure

Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.

Project margin = fee minus the cost of the hours used
- Cost of hours = hours used x cost per hour
- Fixed fee: the fee stays the same when hours run over
- Value based: fee = share of savings, whatever the hours

4. The working, step by step

Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.

Step 1: Planned cost
What a strong candidate does: 2,000 hours at USD 150.
Planned cost (USD): 2,000 × 150 = 300,000
Step 2: Planned margin
What a strong candidate does: Fee minus planned cost, as a share of the fee.
Planned margin (fraction): (600,000 - 2,000 × 150) ÷ 600,000 = 0.5
Step 3: Cost after the overrun
What a strong candidate does: 25 percent more hours: 2,500 hours at USD 150.
Actual cost (USD): 2,000 × 1.25 × 150 = 375,000
Step 4: Margin after the overrun
What a strong candidate does: The fee does not move, so the extra cost comes out of margin.
Actual margin (fraction): (600,000 - 375,000) ÷ 600,000 = 0.375
Step 5: Value based fee
What a strong candidate does: 10 percent of USD 8 million of savings.
Value based fee (USD): 8,000,000 × 0.1 = 800,000
Step 6: Value based margin with the same hours
What a strong candidate does: USD 800,000 minus the actual cost of USD 375,000.
Value based margin (fraction): (800,000 - 375,000) ÷ 800,000 = 0.5313

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

Cedarway should price its next buying project on value, with a floor, because the fixed fee margin fell from 50 to 37.5 percent when hours ran 25 percent over, while a 10 percent share of the USD 8 million savings would have paid USD 800,000 and a margin of about 53 percent. First, the firm carried all the risk of extra hours under the fixed fee. Second, the savings were measurable, which is what value based pricing needs. The risk is that savings fall short and the fee falls with them. As a next step, agree how savings are measured before work starts.

Risks a strong answer names: Savings can be hard to measure and easy to dispute; A fee linked to results can tempt a firm to chase quick savings over lasting change.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.