Qs 5 2 Flashcards
(139 cards)
1
Q
An interconnected supply chain would have what affect on the creation of a risk register?
Options:
A. risks will be larger
B. risks will sit with the procurement team
C. actions to mitigate one risk, may create a new risk
D. actions to mitigate risks will require a cross-functional team
A
Answer:
C
Explanation:
Actions to mitigate one risk, may create another risk. This is a direct quote from p. 132
2
Q
Which of the following legal principles means that a person can only claim the value of a loss once, regardless of if they have multiple insurance policies?
Options:
A. utmost good faith
B. insurable interest
C. contribution
D. subrogation
A
Answer:
C
Explanation:
This is contribution. An example of this is if you have two insurance policies and are going on a business trip that is cancelled last minute. You can claim on the insurance the value of the trip- but only once. So you can either use one policy and not the other, or you can claim half the value of the trip on both policies. This stops people taking out multiple policies and then claiming on them all to make a profit. Legal Principles of Insurance is a known exam topic - this is from p.100-101 of the study guide
3
Q
ISO 20400 represents what area of business?
Options:
A. Quality Management
B. Supply Chain Security
C. Risk Management
D. Sustainable Procurement
A
Answer:
D
Explanation:
ISO 20400 is Sustainable Procurement. This is from p. 51 of the study guide- as well as learning what the ISO numbers are, do also learn the key areas of each ISO as these come up in the exam.
4
Q
A financial instrument used by airlines to fix the price of fuel over a period of time is known commonly as a what?
Options:
A. commodity
B. swap
C. exchange
D. hedge
A
Answer:
B
Explanation:
This is a ‘swap’ and is explained on p.94. This is a type of ‘hedging’ but there is no such thing as ‘a hedge’. For a more in-depth look at Swaps see: https://www.mercatusenergy.com/blog/bid/77634/an-introduction-to-airline-fuel-hedging-strategies-swaps
5
Q
A company with a large risk appetite would do which of the following?
Options:
A. take all risks
B. take risks where it feels it will win more than it loses
C. take few, well calculated risks
D. avoid taking risks
A
Answer:
B
Explanation:
2 is the correct answer. Risk appetite is the level of risk that an individual or organisation is comfortable taking (p.4). Having a large risk appetite does not mean that you want to take every risk (as that would be irresponsible), rather, a large risk appetite means you’re more likely to gamble and take calculated risks, even though they might not pay off. A small risk appetite would describe options 3 and 4 - taking few risks, or none at all.
6
Q
Which of the following FIDIC Contracts would be suitable for a contract for offshore wind projects?
Options:
A. Construction Contract
B. Measured Term Contract
C. Minor Works Contract
D. Yellow Book Contract
A
Answer:
D
Explanation:
This is the Yellow Book. This is briefly mentioned on p.74 and can often be missed by students. There is a question in the exam about which type of FIDIC contract can be used for construction projects and this is NOT explained in the study guide - so here is a link to FIDIC so you can revise this before the exam: https://fidic.org/sites/default/files/FIDIC_Suite_of_Contracts_0.pdf
7
Q
Khalid is a procurement manager who works at a manufacturing organisation based in the UK. The organisation creates building fabric materials by converting raw materials such as steel into useable items in the construction industry. Khalid sources most of his steel internationally due to competitive prices. On one occasion with his usual supplier, the ship that is carrying the materials sinks due to an unexpected storm. Which clause would be activated within the contract?
Options:
A. force majeure
B. liability clause
C. transportation clause
D. breach of contract
A
Answer:
A
Explanation:
this is an example of force majeure. Force majeure is a popular exam topic and comes up in chapter 2.1 p. 66. A force majeure is when an event, such as a storm, happens which affects the delivery of the contract, but over which neither party has any control.
8
Q
Which of the following risks is associated with sourcing from low-cost countries? Select TWO:
Options:
A. operational risks
B. reputational risks
C. geopolitical risks
D. financial risks
A
Answer:
B, C
Explanation:
The correct answers are reputational risks and geopolitical risks. This is according to p. 77 of the study guide. Although I personally feel this is a bit presumptive, painting all ‘low-cost’ countries with the same brush (are all ‘low-cost countries’ politically unstable and allow dodgy things that will affect your reputation?, this is what the textbook says …
9
Q
Fudgylicious Inc is a manufacturer of confectionary based in the United Kingdom. In one of its factories an employee has an accident during his shift which resulted in him breaking a leg and requiring surgery. Will the employer’s Professional Indemnity insurance cover the cost of the operation?
Options:
A. yes- the insurance will cover all medical expenses as the accident occurred during his working hours
B. yes- the insurance can be used as the accident occurred on the company’s premises
C. no- the insurance would not cover the cost of surgery, only for lost wages if he is unable to work
D. no- this is not the purpose of insurance
A
Answer:
D
Explanation:
The correct answer is ‘no-this is not the purpose of insurance’. The question asks if Professional Indemnity Insurance can be claimed on for this- no it can’t- that’s not its purpose. It would be Employer’s Liability insurance which could be claimed on. This question tests your understanding of the different types of insurance. There is a very similar question in the exam- so remember accidents at work are claimed against Employer’s Liability insurance NOT Professional Indemnity insurance - see p.96 for more information on different types of insurance
10
Q
Petra Ltd is a manufacturer of upmarket baked goods and they have a range which is gluten free and therefore suitable for customers who have an intolerance of wheat. For this reason Petra Ltd is very strict about the ingredients that it sources. It’s main supplier has provided written agreement that they will test all ingredients in their processing factory to ensure that they are suitable for the gluten free diet before delivery is made, and once delivery is made the materials will be deemed accepted by the buyer. Is Petra right to accept this arrangement?
Options:
A. yes- this reduces the risk of unsuitable materials entering Petra’s factory
B. yes- this arrangement places the risk on the supplier rather than Petra
C. no- Petra should arrange for additional tests to be conducted on the deliveries and only accept them once these tests have been completed
D. no - this arrangement is unacceptable and Petra should void the contract
A
Answer:
C
Explanation:
Petra should arrange for additional tests to be conducted. This question is based on a real example in the exam. In this scenario there is still significant risk for Petra even if the supplier is testing the materials. The supplier could miss something, or forge the results with disastrous consequences for Petra’s customers. Moreover it would severely damage Petra’s reputation. Therefore the wise thing would be for Petra to conduct additional tests in-house to ensure they are happy with the products and only then accept them. This could be an audit of 10% of deliveries to ensure compliance. Acceptance Testing is discussed in the textbook on p.70
11
Q
What is ISO28000?
Options:
A. Risk Management
B. Supply Chain Security
C. Quality Management
D. Sustainable Procurement
A
Answer:
B
Explanation:
ISO 28000 is Supply Chain Security Management. This is a known topic for the exam. Learn more about ISOs on p. 141
12
Q
Which of the following are technological risks to an organisation? Select TWO
A. cyber-security issue
B. supply chain security issue
C. supplier management issue
D. network failure
E. quality failure
A
Answer:
A, D
Cyber security and network failure are two types of security risks. See. P. 154. There aren’t a lot of questions on chapter 3.4 as it’s a very short chapter and a lot of the material is repeated in earlier chapters. A brief look over this chapter is all you’ll need before the exam.
13
Q
What would happen if a company enacts its Contingency Agreement following a natural disaster?
A. they will receive a financial pay-out
B. they will receive operational help from a third party
C. they will be able to claim on insurance
D. they will be able to breach any contracts that it has
A
Correct Answer:
B
They will receive operational help from a third party is the correct answer. Unlike insurance, a contingency plan provides operational help, not just financial. This could be in providing an emergency workspace, helping to get IT systems back up and running or providing emergency air freight. This is explained on p.91-92 of the study guide
14
Q
The CBCI and DBCI are professional qualifications in which area?
A. supply chain management
B. ethical business practices
C. environmental improvements
D. business continuity
A
Correct Answer:
D
These are qualifications in business continuity. This comes from p.107 of the study guide. CBCI stands for Certificate of the Business Continuity Institute and DBCI Diploma of the Business Continuity Institute. Once you know what the acronyms stand for, the question is quite easy!
15
Q
Which of the following is a component of the Sarbanes-Oxley Regulations?
A. separation of duties
B. ethical business practices
C. elimination of bribery
D. environmental protection
A
Correct Answer:
A
Separation of duties is a key component of the Sarbanes-Oxley Regulations. It ensures businesses are accounting responsibly, and one way to do this is through separation of duties (no one person has complete control of the accounts of a company). See https://www.investopedia.com/terms/s/sarbanesoxleyact.asp and p.42 in the study guide. This piece of legislation does tend to come up in the exam so do revise this topic.
16
Q
Which of the following risks would likely be tolerated by a company?
A. no risks should be tolerated
B. opportunities which are low risk and low impact
C. opportunities which are low risk and high impact
D. opportunities which are high risk and low impact
A
Answer:
B
Low risk and low impact should be tolerated. This is from the Probability and Impact Matric from p.122. The other two options should be either transferred or treated.
17
Q
Which of the following is an internal risk for a company?
A. supplier’s factory burns down
B. exchange rate fluctuations
C. government policy changes
D. lack of available personnel
A
Answer : D
Lack of personnel is an internal risk- the others are external risks. Internal and external risks is a known topic for the exam so see p.116-117 for more information
18
Q
Which of the following is not a benefit of having a contingency plan?
A. competitive advantage
B. increased staff morale
C. greater resilience to force majeure events
D. increased profits
A
Answer : D
Contingency plans won’t increase your profit, but they will do the other three things. This is from p.109-110 of the study guide
19
Q
What is the final stage of Deming’s Plan - Do - Check cycle which is encouraged by ISO9001?
A. Improve
B. Review
C. Act
D. Assess
A
Answer : C
Act is the final stage. See p.25 for a diagram of the cycle.
20
Q
Rabbit Manufacturing operates several factories which create stuffed animals. As these stuffed animals are mainly bought for children, it is extremely important that the quality of the product is assured, and there are no dangerous or small parts which could become choking hazards. Which of the following are appraisal costs that the company should undertake in order to mitigate the risk of poor quality products entering the market?
A. quality control inspections
B. using a pro-active quality management system
C. introduce a 0 defect approach
D. staff training to ensure higher quality products are made
A
Answer : A
Of these four answers only one is an appraisal cost and that is answer 1. The other three options are prevention costs. There is a table of appraisal costs and prevention costs on p. 26 Appraisal costs are reactive- they’re done after the product is manufactured. Preventative costs are actions taken in quality assurance.
21
Q
What is the job of an underwriter?
A. to assist a buyer in selecting the correct insurance
B. to advise required insurance levels for a contract
C. to evaluate insurance applications
D. to determine the validity of an insurance claim
A
Answer : C
An underwriter evaluates insurance applications. Learn the difference between Insurance Underwriters and Claims Adjusters for the exam - this is a known topic. (A claims adjuster determines the validity of an insurance claim).
22
Q
The legal principle of insurable interest means which of the following statements are TRUE? Select TWO.
A. it is possible to insure someone else’s factory
B. it is not possible to insure someone else’s factory
C. it is possible to insure your supplier’s factory
D. it is not possible to insure your supplier’s factory
A
Answer : B, C
Insurable Interest means that it is not possible to insure someone else’s factory. The study guide explains that you can only take out insurance where you have at least partial ownership of that risk. Therefore option 3 is also correct as you have a partial risk if something were to happen to your supplier’s factory. You can take out CBI insurance for this. see p.100-101 for further s of Legal Principles of Insurance
23
Q
Zara is a procurement manager who is thinking about working with a new supplier to source buttons for her clothes manufacturing business. Her manager has asked her to do some due diligence on the supplier’s financial stability.
What should she do?
A. use an outsourced third-party credit rating agency
B. use an outsources third-party risk management consultant
C. conduct a credit check on the supplier based on the information provided by them in the tender
D. conduct a risk assessment based on the information provided by the supplier in the tender
A
Answer:
A
Explanation:
She should use a credit rating agency for this. She should not do this herself as she won’t have access to accurate information like an agency will. The supplier may not have been truthful in their tender. For information on Credit Rating Agencies see p.79
24
Q
John is a mid-level manager and has created a risk / reward matrix about four potential opportunities at his company White Ducky Limited. He will present his research to a board meeting next week. He has categorised the four opportunities as the following.
Which of these opportunities should John recommend the board ‘consider’? Select TWO.
A. low risk / high reward
B. high risk/ high reward
C. low risk/ low reward
D. high risk/ low reward
A
Answer: B, C
Explanation:
High risk/ high reward, and low risk/ low reward are the options that should be CONSIDERED. This is according to the risk/ reward matrix on p. 6. Items that are low risk/ high reward should be PROGRESSED and items which are high risk / low reward should be AVOIDED.
25
Risk should be a 'golden thread' that links all of the organisation's strategies, communications, policies and training. The LILAC model describes how a risk-aware culture can be created.
Which of the following form part of the LILAC model?
A. Leadership and Learning
B. Investment and Accountability
C. Appraisal and Communication
D. Learning and Information
Answer: A
Explanation:
The LILAC Model is; Leadership, Involvement, Learning, Accountability and Communication. P. 149
26
In an organisation, who is responsible for creating a risk assessment register?
A. the CEO
B. Procurement Manager
C. Risk Manager / H+S Manager
D. Cross-Functional Team
Answer: D
Explanation:
A Cross Functional Team should create a risk register. It shouldn't be the responsibility of one person to do this- more points of view will lead to more risks being identified. Accountability for the Risk Register may however sit with the CEO or a Department Manager. This is explained on p. 132
27
Oliver is a procurement manager and he is trying to work out the likelihood that a supplier fails to deliver to the warehouse two days in a row.
Which of the following methodologies should Oliver use?
A. value at risk
B. normal distribution
C. binomial distribution
D. Poisson Distribution
Answer: D
Explanation:
Poisson Distribution would be used for this. Poisson Distribution predicts the likelihood of an event occurring. This is explained on p. 129 of the study guide but this YouTube video explains it a lot better: https://www.youtube.com/watch?v=zA7fp2s7FlM
28
Which of the following form part of the Stakeholder Salience Model? Select TWO
A. power
B. legitimacy
C. interest
D. level
E. attitude
Answer: A, B
Explanation:
Power and Legitimacy are part of the Stakeholder Salience Model - the third characteristic is Urgency. See p. 138
29
Risk Management is a process with several steps.
Which of the following is the last step of the cycle?
A. identify risks
B. treat
C. monitor and review
D. communicate and consult
Answer: C
Explanation:
monitor and review is the last stage. The full cycle is; establish context - identify risks - analyse and evaluate risks - treat -communicate and consult - monitor and review. See p. 142
30
Which of the following are benefits of ISO28000? Select TWO.
A. competitive advantage
B. cost saving
C. increased market share
D. decreased legal costs
Answer: A, B
Explanation:
Advantages of ISO28000 are competitive advantage and cost savings. The textbook explains that cost savings come through a reduction in security incidents. For more info on ISO28000 see p. 141
31
Which of the following statements is true about ISO9001? Select TWO.
A. it is based on the principle of continuous improvement
B. it encourages businesses to see quality from the viewpoint of the customer
C. it aims to ensure sustainability within the supply chain
D. It complements ISO 20400
E. it helps businesses to identify areas of potential risk and mitigate these accordingly
Answer A, B
Explanation:
ISO 9001 is Quality Management- answers 1 and 2 are correct. ISOs are a popular topic on this exam so be sure to revise them - and not only what the names of them are, but also the principles behind each ISO. ISO 9001 is discussed on p. 25 of the CIPS study guide.
32
In which of the following industries is it common to find dedicated resource for risk management?
A. banking and insurance
B. agriculture
C. manufacturing
D. the public sector
Answer: A
Explanation:
Banking and Insurance industries usually have a dedicated resource. This mean people working within the company are dedicated to this role (as opposed to using a third party). P. 146
33
Fraud committed by an employee within a business is what type of risk?
A. internal risk
B. external risk
C. procurement risk
D. economic risk
Answer: A
Explanation:
This is an internal risk. A procurement risk would be issues with a supplier or contract, and economic risk would be exchange rate fluctuations etc. See p.118 for more information on internal risks- it's a known exam topic
34
Which of the following statements is true about a Disaster Recovery Plan? Select TWO
A. it is held at the top level
B. it contains more detail than a business continuity plan
C. the focus is to return a company to making a profit after a disaster
D. it can be structured using a standardised framework
Answer: B, D
Explanation:
Answers 2 and 4 are correct. A Business Continuity Plan is held at the top level, not a disaster recovery plan. This can be held at the department level- or whoever would have the ability to enact this if a disaster were to happen. A company is likely to have several Disaster Recovery Plans for different departments and different scenarios so several people within the organisation may be accountable for these. Option 3 is incorrect as the focus is on recovering systems (e.g. getting people back online) not on profit. P.155
35
Company X is a large manufacturer of cosmetics and household products. It operates in 57 different countries and has large and complex supply chains. The brand's popularity is partly due to the cheap price of the products compared with its competitors and Company X has recently discovered that child labour has been used within its supply chain. In response to this Company X has donated a large amount of money to charity.
What is this an example of?
A. corporate social responsibility
B. greenwashing
C. triple bottom line thinking
D. business continuity planning
Answer: B
Explanation:
This is Greenwashing. Greenwashing is the process of using a good deed to cover up unethical responsibility. See p. 45. In this example Company X has thrown some money at a charity in order to cover up the fact it has child labour issues within the supply chain. See https://en.wikipedia.org/wiki/Greenwashing
36
Yusef is a new procurement manager at FRD Incorporated. He is looking through the Risk Assessments for his department and notices that the cause of the risk is not identified.
Why might this be?
A. this is a mistake - all risk assessments should specify the cause of the risk. He should raise this with his manager
B. the organisation has a high risk appetite
C. the organisation has not recorded cause for cultural reasons
D. the organisation has completed the risk assessments incorrectly
Answer: C
Explanation:
This could be for cultural reasons within the company. P. 135 states that sometimes causes of risk are not recorded as this could lead to a blame culture within the company.
37
Dave is a procurement manager for a chocolate factory who is running a tender to source cocoa from a new supplier. The tender is a huge opportunity for suppliers and the contract would be worth millions of pounds. Dave has passed some information about the tender to one of the bidders in exchange for a free holiday to Barbados.
Which of the following types of fraud has Dave committed?
A. holiday fraud
B. accepting a kick-back
C. counterfeiting
D. bribery
Answer D
Explanation:
This is an example of bribery. The trip to Barbados is the bribe. For more information on these types of fraud see p.19
38
Which of the following statements are true about risk management? Select TWO.
A. the goal of risk management is to reduce risks to 0
B. risk management is a continuous process
C. risk management is an activity that is conducted by a business once a year
D. risk management can help companies ensure the smooth and successful running of purchase and supply operations.
E. risk management is the process by which all risks are either treated or transferred
Answer: B, D
Explanation:
The correct responses are 2 and 4: risk management is a continual process and helps companies ensure the smooth and successful running of P+S. These are direct quotes from p.3 of the study guide. The other answers are wrong- if risk management is a continuous process it's not something that is done once a year- so this option is automatically discounted. Option 1 is also wrong as you can never reduce all risks to 0, and option 5 is also wrong- risks can be treated and transferred, but they can also be tolerated and terminated.
39
Chloe is a procurement manager at Ruby Company. She has been asked to join a cross-functional team to review the company's risk appetite, potential risks within the supply chain and brainstorm mitigating actions. Chloe has suggested that the cross-functional team should first draw up a list of potential supply chain risks and potential strategies to overcome the risks.
Is Chloe correct?
A. yes- the first thing the team should look at are the risks and categorise these by topic
B. yes- the team should focus on creating a risk register and strategies for mitigating risks as quickly as possible
C. no- the team should review the company's risk appetite before creating a risk register
D. no- Chloe should first speak with suppliers before drawing up the list of potential supply chain risks
Answer: C
Explanation:
The correct answer is 3 'no- the team should review the company's risk appetite before creating a risk register'. This questions tests to see if you understand what risk appetite is and when this should be reviewed. Risk appetite is the first stage in developing any plan as it will influence the next stages. For example if the company has a large risk appetite, this would affect how they would classify risks and what mitigating actions they would take. Risk appetite is explained in chapter 1.1 (p.4) but it also comes up in Learning Outcome 3
40
Leo LLP is a company which sources materials internationally, and then sells these on nationally at a small margin. Leo LLP has noted that there is a risk of exchange rate fluctuations making their purchases unviable. The CFO has declared that the only way to mitigate this risk is via hedging and that they should look at price fixing. is this correct?
A. yes- hedging is the only solution to mitigate the risk of adverse price movements
B. yes- this reduces the risk to 0
C. no- Leo LLP could do nothing and increase its prices instead
D. no- Leo LLP can take out insurance to mitigate this risk
Answer C
Explanation:
The correct answer is 3 'no Leo LLP could do nothing and increase its prices instead'. Firstly the CFO is wrong. There are other ways to mitigate this risk than hedging- hedging isn't the ONLY thing you can do. Therefore you automatically need to discount options that begin with yes. Then looking at the options that begin with no, insurance isn't going to help in this situtation. Therefore, by process of elimination you will be left with 'no Leo LLP could do nothing and increase its prices instead'.
This question is taken from p.95 - there is a section here describing alternatives to hedging. When dealing with currency fluctuations, an alternative to fixing a price is to build in a margin on your own prices. This margin acts as a buffer for if prices go up- your price can remain the same. Other alternatives to hedging suggested by CIPS include; negotiating long term contracts, buying out the supplier and ingredient substitution
41
Which of the following stages would come first within a risk assessment?
A. evaluate risk
B. treat risk
C. monitor risk
D. analyse risk
Answer: D
Explanation:
analyse is the correct answer. The full process is: establish context- identify- analyse - evaluate - treat - monitor and review. This is from p.122
42
Which of the following are factors which can lead to a supplier becoming insolvent? Select THREE
A. fraudulent activity
B. attrition of key employees
C. uncontrolled expenditure
D. increased market share
E. a high financial ratio
Answer: A, B,C
Explanation:
1 2 and 3 are factors which can lead to a supplier becoming insolvent. 4- increased market share is a good thing, as it indicates the supplier is doing better than their rivals. A high financial ratio is also a good thing as it shows they have more assets than debt - so this is not a sign of insolvency. See p.24 for 'Supplier Risks'
43
A black swan event is what type of occurrence?
A. an occurrence with a good outcome
B. an occurrence with a negative outcome
C. a common occurrence
D. an unusual occurrence
Answer: D
Explanation:
A black swan event is an unusual occurrence - something that is rare. See p.124
44
Which of the following statements about binomial distribution are true? Select THREE
A. there are only two outcomes
B. they are based on continuous events
C. there is only one outcome per event
D. each trial has the same probability
C. the events of one trial will impact on the next one
Answer: A, C, D
Explanation:
1, 3 and 4 are the correct options. Binomial is based on discreate events not continuous and it assumes the events of each trial are independent of one another. This YouTube video explains it all perfectly using the chance that an ice-cream cone is broken. It's a nice memorable example to help you remember what binomial distribution is and how it works: https://www.youtube.com/watch?v=3EZbX2ftCUk - it's a very memorable example and really helped me. You can also see more info in the cips textbook p.131
45
Which of the following are key areas of ISO 26000 Social Responsibility? Select THREE.
A. organisational governance
B. quality management
C. human rights
D. consumer issues
E. efficient systems
Answer: A, C, D
Explanation:
1 3 and 4 are the correct answers. There are 7 key areas that ISO 26000 focuses on. As well as these three, there is also labour practices, the environment, fair operating practices and community involvement. See p. 51 of the study guide. ISOs are a popular exam topic so do revise these before the exam.
46
Controlling a risk through the development of actions that can minimise the impact the organisation will suffer as a result of the risk event is known as what control?
A. tolerate
B. treat
C. transfer
D. terminate
Answer(s): B
Explanation:
This is the description of treat mentioned on p. 143. The 4 Ts is a popular exam topic
47
The UK Companies (Miscellaneous Reporting) Regulations 2018 states that organisations with more than 250 employees must do what?
A. Publish an Anti-Slavery Policy
B. Provide an annual financial statement
C. Demonstrate how they abide by Environmental practices
D. Publish a summary of how directors have engaged with employees
Answer(s): D
Explanation:
The correct answer is 'publish a summary of how the directors have engaged with employees'. For more information on this piece of legislation see p. 145
48
Which of the following is an International Standard for Risk Management?
A. ISO 22301
B. ISO 27000
C. ISO28000
D. ISO31000
Answer(s): D
Explanation:
Risk Management = ISO31000. Learn the ISOs for the exam as it's a popular exam topic. 31000 is explained on p. 140. As well as the numbers, you should also learn the guiding principles of each ISO
for the exam.
49
Which of the following statements about normal distribution are correct? Select TWO
A. it is the most common type of distribution pattern
B. there's a small number of data points required to produce
C. it is represented pictorially as a curve
D. most of the data points correlate around the beginning
E. it is shaped like a bell curve
Answer(s): A,E
Explanation:
1 and 5 are correct- it is the most common type of distribution and it looks like a bell curve when it's drawn as a graph. There's one on p.127 to look at. The other three statements are incorrect- it's a bell shape rather than a curve, it requires a large number of data points and most of the data points correlate around the middle.
50
Which of the following insurances would provide cover in the eventuality that your supplier's place of business flooded and this affected your deliveries?
A. business interruption insurance
B. contingent business interruption insurance
C. public liability insurance
D. property insurance
Answer(s): B
Explanation:
This is 'contingent business interruption' insurance. This protects you if anything were to happen to your suppliers' premises. Business Interruption Insurance would cover you if something were to happen to your premises. See p.99
51
In an emergency situation, put the following phases into chronological order as to when they would be activated 1) disaster recover plan 2) incident response 3) business continuity plan
A. 1, 2, 3
B. 1, 3, 2
C. 2, 1, 3
D. 3, 1, 2
Answer(s): C
Explanation:
The correct order is 2, 1, 3 - this is from p.108 of the study guide: 'The Components of a Business Continuity and Disaster Recovery Plan'.
52
Which of the following is not an internal risk for a business who imports raw materials from abroad?
A. technology malfunction
B. procurement fraud
C. loss of customer data
D. changes to import levies
Answer(s): D
Explanation:
changes to import levies is an external risk. Not internal. See p.118-119 for more information on internal risks - this is a popular exam topic. Internal risks are stuff that happens inside a company, external risks are risks from the external environment (whether this is political, economical, weather etc)
53
Envy Manufacturing has several factories located in countries with poor reputations for human rights. It is concerned about potential risks of child labour being used within the supply chain. Envy Manufacturing has therefore decided to enlist the support of a third party auditing company to audit its factories. How should these audits be conducted? Select TWO
A. organised well in advance to allow the factory managers to prepare for the audit
B. conduct on the spot visits with no warning
C. conduct group interviews with workers to ensure that all voices are heard
D. conduct private meetings with a selection of workers
Answer(s): B,D
Explanation:
2 and 4 are correct. Audits should be unscheduled so that any issues can't be covered up in advance. Interviews with workers should also be conducted in private as this will allow them to speak their mind with confidence.
Where interviews are conducted as a group there may be peer-pressure to say the correct thing. especially if there are managers around. see p.88 for information on Audits
54
Kevin is a consultant who works for himself and is predominantly based at home, except for when he visits clients. He has recently taken on a role advising a client about the feasibility of building a new railway station in a village.
Which of the following insurances would be vital for Kevin to take out?
A. product liability
B. public liability
C. trade credit
D. professional indemnity
Answer(s): D
Explanation:
As a consultant he will need Professional Indemnity insurance. This insurance is for roles that include providing advice, designs and services. Insurances comes up a bit in the exam so revise this from p.96-100
55
Which of the following statements about FIDIC Contracts are true? Select TWO:
A. They are used in the construction industry
B. They are more collaborative than NEC contracts
C. Each party manages their own risks separately
D. Early warning notices are given when risks arise
E. Change control is called a 'Compensation Event'
Answer(s): A,C
Explanation:
1 and 3 are correct answers. Options 2,4, and 5 are true for NEC contracts - NEC is more collaborative than FIDIC, early warning notices are given and change controls are called 'Compensation Events'. See p.74 for more information on FIDIC and NEC Contracts. This does come up in the exam
56
A large multi-national corporation has just been awarded a credit rating of C by the three main credit rating agencies.
What does this score signify?
A. low risk
B. average risk
C. substantial risk
D. in default
Answer(s): C
Explanation:
a C grade = substantial risk. This is based on the grading system of AAA-D and is explained on p. 80.
basically anything that isn't an A is bad.
57
A supplier of non-critical items has a low credit score, Which of the following actions should be taken? Select TWO options.
A. replace the supplier as quickly as possible with a more financially stable supplier
B. conduct a benchmarking exercise
C. create a risk assessment and mitigation plan
D. inform the CEO of the company
Answer(s): B,C
Explanation:
The correct answers are conduct benchmarking and create a risk assessment. This supplier provides low value and low risk products - therefore the fact they have a bad credit rating isn't too much of a risk to your company. It's worth doing a benchmarking exercise to compare their position to others in the market to see if there are any industry-wide trends, and to create a risk assessment and mitigation plan. This could involve working with the supplier to help them improve their credit score, for example by using more favourable payment terms so they have a better cash flow. There's no need to replace them immediately, and there's no need to tell the CEO- they probably have more important things to think about than a singular supplier of non-critical items See p.81
58
An indemnity clause should contain which of the following pieces of information 1) duties of both parties 2) a monetary limit 3) insurance levels 4) details of the breach 5) a time limit
A. 1,2,5
B. 1,3,4
C. 2,4,5
D. 3,4,5
Answer(s): A
Explanation:
Indemnity clauses should contain duties of both parties, a monetary limit and a time limit (1 2 and 5). It should also detail what types of costs are covered. These four points are explained on p.61. An indemnity clause doesn't necessarily signal a breach in contract, and levels of insurance are not relevant here.
59
Which of these is a type of Intellectual Property protection? Select TWO
A. Warranty
B. Condition
C. Patent
D. Trademark
Answer(s): C,D
Explanation:
Patent and Trademark are types of IP protection. There are 4 in total - the other two are copywrite and trade secret. This is covered on p.63-64 of the study guide
60
Which of the following is an example of force majeure?
A. The supplier delivers materials late due to a breakdown
B. The supplier asks for an uplift in prices
C. The supplier is under criminal investigation for fraud
D. The supplier's factory is hit by a hurricane
Answer(s): D
Explanation:
The hurricane is the force majeure event. Natural disasters such as this, or any events outside of the parties' control could be considered force majeure. This is a popular exam topic - see p. 66 in the study guide
61
Which of the following is a method for approaching risks?
A. tolerate
B. translate
C. transport
D. take out
Answer(s): A
Explanation:
Tolerate is one of the 4 Ts. This is a popular exam question so do learn the 4 Ts: Tolerate, Treat, Transfer and Terminate. See p.32.
62
What is the purpose of the Sarbanes-Oxley Regulation?
A. to protect the environment
B. to ensure high levels of ethical practice with regards to working conditions
C. to encourage transparency in financial reporting
D. to ensure that products that reach the market are fit for purpose
Answer(s): C
Explanation:
Sarbanes Oxley Regulations encourages transparency in financial reporting. The regulations came in response to the Enron scandal in 2001 when Enron bosses were falsifying financial records to make the company look better than it was, then the company went bust. The point of Sarbanes Oxley is to ensure that this doesn't happen again- that business leaders report correct financial statements to shareholders. The study guide talks about this on p.42 but I'd recommend also watching this video as it gives a good background to the regulation:
https://www.investopedia.com/terms/s/sarbanesoxleyact.asp
63
Maple Tree Limited is a Canadian company who has recently signed a new contract with a supplier who is based in China, Maple Tree Limited will be buying a raw material with a reputation for severe price fluctuations.
Which of the following would help mitigate the risk that this poses? Select TWO options
A. quote in the supplier's currency
B. quote in the buyer's currency
C. use a forward exchange contract
D. fix the exchange rate at the current rate
Answer(s): C,D
Explanation:
The correct answers are 3 + 4. To mitigate the risk, you want to ensure price stability for the duration of the contract- you don't want the prices to keep going up and down. Therefore options 1 and 2 wouldn't help- the prices would still go up and down regardless of which currency was used for quotes. Using a forward contract, or fixing the exchange rate, however, would give price certainty,
and therefore mitigate the risk. See p.23 for more information on currency risks and how to overcome these
64
Neruda Incorporated is evaluating potential suppliers' financial standings as part of a tender.
Which of the following companies is the most financially stable?
A. Company A has a high gearing ratio, high liquidity and few fixed assets
B. Company B has low liquidity, a high gearing ratio and increasing sales trends
C. Company C has low liquidity, low gearing and increasing sales trend
D. Company D has high liquidity, low gearing and lots of fixed assets
Answer(s): D
Explanation:
Company D is the strongest. You want a company with high liquidity (this means they can easily pay any debts) and low gearing (meaning that their company isn't financed by debt). This question comes from p.24 of the CIPS study guide. It doesn't go into a lot of detail on financial ratios and gearing, as this was covered in Level 4. If you're rusty on financial ratios and gearing I recommend revising these before the exam.
65
Company DDD has recently seen a drop in share price and has high levels of Work-in-Progress (WIP) due to late supplier deliveries.
Which of the following is the type of risk the business facing?
A. financial
B. logistical
C. opportunity
D. reputation
Answer(s): A
Explanation:
This is a financial risk. A drop in share prices is a huge financial risk for a company. Having lots of items as WIP is also a financial risk as this signifies that a lot of money is tied up in stock being held on site. Types of risk are very popular exam questions for this module- for a full list of these and s see p.11
66
What is the purpose of an indemnity clause within a contract?
A. to assign risk to each party
B. to ensure both parties are adequately insured if something were to go wrong
C. to transfer risk from one party to another
D. to explain what would happen in the case of a force majeure
Correct Answer: C
Indemnity clauses transfer risk from one party to another. It is an arrangement whereby one party promises to compensate the other party for a trigger event. An example of an indemnity clause could be a construction firm is building a new bridge and the project is supposed to be completed by 1st June. An indemnity clause may state that should the bridge not be ready by this date, the construction firm will compensate the buyer by X amount. See p.61 for more information on indemnity.
66
Which of the following models would be used to explore internal and external risks to a business?
A. Porter's 5 Forces
B. STEEPLE
C. SWOT
D. Poisson Distribution
Answer(s): C
Explanation:
SWOT is used for this. S + W is strengths and weaknesses, which are internal risks. O+T are opportunities and threats which are external risks. See p. 12 for more information
67
Which of the following is an example of an operational risk?
a. Unexpected interest costs.
b. Internal technology failure.
c. Increased competitor activities.
d. Fluctuating exchange rates
b. Internal technology failure.
Here's why:
Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events.
Let's look at why the other options are not primarily operational risks:
a. Unexpected interest costs: This is primarily a financial risk. It relates to the cost of borrowing money and how changes in interest rates can impact an organization's expenses.
c. Increased competitor activities: This is a strategic or market risk. It concerns the potential negative impact of competitors' actions on an organization's market share and profitability.
d. Fluctuating exchange rates: This is a financial risk, specifically related to currency risk and how changes in exchange rates can affect international transactions and the value of assets and liabilities.
Sources and related content
68
The Sarbanes-Oxley regulations are mostly focused on:
1. Investor protection
2. Product quality
3. Clear commercial advertising
4. Corporate financial disclosure
a. 2 and 3 only
b. 1 and 2 only
c. 3 and 4 only
d. 1 and 4 only
The correct answer is d. 1 and 4 only.
The Sarbanes-Oxley Act of 2002 (often referred to as SOX) in the United States was enacted in response to major corporate accounting scandals. Its primary focus is on:
Investor protection: SOX aims to protect investors by increasing the reliability and accuracy of corporate financial reporting.
Corporate financial disclosure: A significant part of SOX mandates greater transparency and accountability in how public companies disclose their financial information. This includes requirements for internal controls over financial reporting and certifications of financial statements by company executives.
While important, product quality and clear commercial advertising are not the central focus of the Sarbanes-Oxley regulations. These areas are typically governed by other laws and regulations related to consumer protection and product safety.
69
A supplier's terms and conditions include provision in respect of tsunami, earthquakes and volcanic eruption. This type of provision is known as ...
A. a liquidated damages clause
B. an exclusion clause
C. an indemnity clause
D. an insurance provision clause
B. an exclusion clause.
Here's why:
An exclusion clause is a provision in a contract that seeks to limit or exclude liability for certain events or circumstances. In this case, the supplier is specifically excluding liability for disruptions or damages caused by natural disasters like tsunamis, earthquakes, and volcanic eruptions.
70
An uncertain event or condition that, if it occurs, has a positive or negative effect on one or more projects objectives is called:
A. An issue
B. A risk
C. An uncertainty
D. A sponsor
answer is B. A risk.
Here's why:
Risk, in the context of project management and general business, is defined as an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives. These objectives can include scope, schedule, cost, and quality.
Let's look at why the other options are not the best fit:
A. An issue is a problem that has already occurred and is currently impacting the project. It's no longer an uncertain event.
C. An uncertainty is a broader term that implies a lack of complete knowledge about something. While risk involves uncertainty, the definition of risk specifically includes the potential for positive or negative impact on objectives.
D. A sponsor is an individual or group who provides resources and support for the project and is accountable for its success. They are not an uncertain event or condition.
71
ManCo Inc is a global manufacturing organisation. It has a highly integrated supply chain. All parties are interconnected with the result that data availability and transparency are high. Its CPO however is concerned about technological risk. Which of the following is such a risk for ManCo?
a. Cybercrime
b. Global economics
c. Labour standards
d. Economic uncertainty
a. Cybercrime.
Here's why:
Cybercrime directly relates to technological risks in a highly integrated and data-transparent environment like ManCo Inc.'s supply chain. Interconnected systems are more vulnerable to cyberattacks, data breaches, and disruptions to technological infrastructure.
Let's look at why the other options are less directly related to technological risk in this context:
b. Global economics: While global economic factors can impact ManCo's business, they are not primarily a technological risk. They fall under economic or market risks.
c. Labour standards: Issues related to labour standards in the supply chain are social and ethical risks, not technological ones.
d. Economic uncertainty: Similar to global economics, economic uncertainty is a broader macroeconomic risk, not specifically a technological risk.
Given the description of ManCo's interconnected systems and high data transparency, the most pertinent technological risk would be threats to the security and integrity of those systems and data, which is encompassed by cybercrime.
72
A document you use to capture all known risks is called:
A. Risk Log
B. Risk Register
C. Risk List
D. Risk Diary
B. Risk Register.
Here's why:
A Risk Register is a comprehensive document used in project management and risk management to identify, analyze, evaluate, and track potential risks. It typically includes details such as the description of the risk, its likelihood and impact, planned responses, responsible parties, and current status.
73
Product Manufacturing Group (PMG) is UK based and has just started sourcing materials from Europe and has to pay its supplier in Euros. This is PMG's first exposure to Euro denominated payments. It does however sell its products into European markets and has Euro receivables. Which of the following will be the most appropriate for PMG to manage its Euro currency risk exposure?
A. Forward contract
B. Swap
C. Currency account
D. Option
The most appropriate option for PMG to manage its Euro currency risk exposure, given that it has both Euro payables and Euro receivables, is likely a B. Swap.
Here's why:
Swap: A currency swap allows PMG to exchange a stream of payments in one currency for a stream of payments in another currency. Since PMG has both Euro inflows (receivables) and Euro outflows (payables), a swap can be structured to match these flows. For example, PMG could agree to pay a fixed amount in GBP and receive a variable amount in EUR (linked to their receivables) while simultaneously agreeing to receive a fixed amount in GBP and pay a variable amount in EUR (linked to their payables). This can effectively hedge both sides of their Euro exposure and potentially lock in more predictable GBP cash flows.
Let's look at why the other options might be less ideal in this specific scenario:
A. Forward contract: A forward contract would allow PMG to lock in a specific exchange rate for a future transaction (either a payment or a receipt). While useful for individual transactions, managing both payables and receivables with separate forward contracts could become complex and might not fully leverage the offsetting nature of their currency flows.
C. Currency account: Holding a Euro currency account would help manage the transaction costs associated with converting currencies for each payment and receipt. However, it wouldn't directly protect PMG from fluctuations in the Euro/GBP exchange rate. The value of the Euros held in the account would still change relative to GBP.
D. Option: A currency option gives PMG the right, but not the obligation, to buy or sell Euros at a specific exchange rate in the future. While this offers flexibility and protection against adverse movements, it comes at the cost of a premium. Given that PMG has consistent flows in both directions, a swap might be a more cost-effective hedging strategy.
In summary, the swap allows PMG to manage its overall Euro currency exposure by potentially netting off its receivables and payables in Euros and locking in more predictable GBP cash flows.
74
On a Friday evening John (your best engineer in the team) comes to you and says he quits. You have two weeks to find a substitution. What would reduce the chances of such an event?
A. Regular one-on-ones with John
B. Comprehensive professional development plan
C. The highest salary in the team
D. More responsibility
A. Regular one-on-ones with John.
Here's why:
Regular one-on-ones provide a dedicated space for open communication. You can:
Understand John's concerns, frustrations, and career aspirations.
Address any issues before they escalate to the point of him wanting to leave.
Provide feedback, recognition, and support, making him feel valued.
Discuss his professional development and future within the company.
While the other options can contribute to employee satisfaction and retention, they are less directly focused on proactively identifying and addressing potential issues that could lead to someone quitting:
B. Comprehensive professional development plan: This is important for long-term growth and engagement, but it might not prevent someone from leaving due to immediate concerns or feeling unheard.
C. The highest salary in the team: While compensation is a factor, it's not always the primary reason people leave. Lack of communication, feeling undervalued, or lack of growth opportunities can be equally or more significant.
D. More responsibility: While some employees thrive on increased responsibility, for others it can lead to stress and burnout if not managed well or if other underlying issues aren't addressed. Giving more responsibility without understanding John's capacity and desires could even hasten his departure.
In summary, regular one-on-ones create a crucial channel for dialogue and early intervention, making it the most direct way to reduce the chances of a valued employee like John suddenly quitting.
75
Which of the following are potential risks that are directly associated with a company's brand?
1. Marketing
2. Reputation
3. Positioning
4. Support
a. 1 and 2 only
b. 2 and 3 only
c. 3 and 4 only
d. 1 and 4 only
b. 2 and 3 only.
Here's why:
2. Reputation: A company's reputation is intrinsically linked to its brand. Negative incidents, poor quality, or unethical behavior can severely damage the brand's image and customer trust. This is a direct risk to the brand.
3. Positioning: Brand positioning refers to how a company's products or services are perceived in the market relative to competitors. Poor or unclear positioning can weaken the brand's identity and make it less appealing to target customers, posing a direct risk to its success.
Let's look at why the other options are less directly associated as risks to the brand itself:
1. Marketing: While ineffective marketing can hinder brand growth and recognition, marketing itself is a function used to build and promote the brand. It's the failure or negative impact of marketing efforts (e.g., misleading campaigns) that would pose a risk to the brand.
4. Support: Poor customer support can certainly damage a company's reputation, but "support" itself is a service offered under the brand. The quality of support and negative customer experiences are the direct risks to the brand's reputation.
76
A process that involves prioritizing risks for further action or analysis by assessing the impact and the probability of occurrence is called:
A. Risk Analysis
B. Risk Brainstorming
C. Risk Identification
D. Risk Appetite
A. Risk Analysis.
Here's why:
Risk Analysis is the process of evaluating identified risks to determine their likelihood of occurrence and their potential impact. This assessment allows for the prioritization of risks, enabling the organization to focus its resources on the most significant threats and opportunities.
Let's look at why the other options are not the best fit:
B. Risk Brainstorming: This is a technique used during Risk Identification to generate a comprehensive list of potential risks. It doesn't involve the subsequent assessment of impact and probability for prioritization.
C. Risk Identification: This is the process of determining and documenting potential risks that could affect the project or organization. It precedes risk analysis.
D. Risk Appetite: This refers to the level of risk an organization is willing to accept in pursuit of its objectives. It influences how risks are prioritized but is not the process of prioritization itself based on impact and probability.
77
Is it usual to encourage whistle-blowing amongst employees working in the supply chain if they suspect unethical behaviour in the supply chain?
a. Yes, because these staff are more likely to be aware of such malpractices
b. Yes, because they will always know if there is unethical behaviour
c. No, because there is usually no means of them doing so confidentially
d. No, because in many countries this will be illegal as it is confidential information
a. Yes, because these staff are more likely to be aware of such malpractices.
Here's why:
Employees working directly within the supply chain, whether they are your own staff or those of your suppliers, are often best positioned to observe unethical behavior such as fraud, corruption, human rights violations, or environmental breaches. Encouraging whistle-blowing can provide crucial early warnings and insights that might not be visible through audits or other oversight mechanisms.
Let's look at why the other options are less accurate:
b. Yes, because they will always know if there is unethical behaviour: While they are more likely to be aware, it's not guaranteed they will always know. Unethical behavior can be concealed.
c. No, because there is usually no means of them doing so confidentially: Reputable organizations should establish confidential and secure channels for whistle-blowing to encourage reporting without fear of retaliation. This is a key aspect of an effective whistle-blowing program.
d. No, because in many countries this will be illegal as it is confidential information: Encouraging the reporting of unethical behavior is generally not illegal. Laws often exist to protect whistle-blowers. Confidentiality of the reporter is usually a priority, but the act of reporting wrongdoing is typically not illegal. The focus is on addressing potentially harmful or illegal activities.
78
During the Qualitative Risk Analysis, you assess Impact and Probability of a risk using simple grades like Low, Medium, High.
When do you perform Risk Identification?
A. At the beginning of a project.
B. During project planning.
C. During the whole lifetime of a project.
D. During project execution.
C. During the whole lifetime of a project.
Here's why:
Risk Identification is not a one-time activity. While it's crucial to start identifying potential risks early in the project lifecycle (at the beginning and during planning), new risks can emerge as the project progresses through execution and even closure.
Let's look at why the other options are less comprehensive:
A. At the beginning of a project: This is an important time to identify initial risks, but it's not the only time.
B. During project planning: This is when a more detailed risk assessment and planning for risk responses occur, building on the initial risk identification. However, risks can still arise later.
D. During project execution: While you'll certainly deal with risks that materialize during execution, you should also continue to be vigilant for new risks that might emerge due to changes, unforeseen circumstances, or increased understanding of the project.
Therefore, risk identification is an iterative process that should be performed continuously throughout the entire project lifecycle to ensure that new and evolving risks are identified and managed effectively.
79
As a part of your project, you need to organize a conference. You learn that in the place you've rented there's a 70% chance of a tropical storm on the selected dates. How should you handle such risk?
A. Change the location of the conference.
B. Buy insurance to cover possible damage.
C. Book another place nearby to mitigate the risk of the first location unavailable due to the storm.
D. Inform all participants of the possible storm.
Given the high probability (70%) of a tropical storm, the most prudent way to handle this risk is to A. Change the location of the conference.
Here's why:
Changing the location directly avoids the primary risk of the storm disrupting or preventing the conference from happening at the planned venue. This is a risk avoidance strategy, which is often the most effective when the probability and potential impact are high.
Let's look at why the other options are less ideal as a primary response:
B. Buy insurance to cover possible damage: While insurance is a good risk mitigation strategy for potential financial losses if the storm hits, it doesn't prevent the disruption of the conference itself. You would still face potential cancellations, travel issues for attendees, and the negative impact of a poorly executed or canceled event.
C. Book another place nearby to mitigate the risk of the first location unavailable due to the storm: This is a form of contingency planning and is a good secondary measure. However, it doesn't eliminate the risk of the storm affecting the nearby location as well, potentially leading to double the logistical challenges and costs. It's better to avoid the high-risk area altogether if feasible.
D. Inform all participants of the possible storm: While transparency is important, simply informing participants doesn't address the core risk of the conference being severely impacted or canceled. It puts the onus on them to decide whether to attend and doesn't solve the logistical and organizational challenges you would face.
Therefore, changing the location is the most proactive and effective way to handle a high-probability, high-impact risk like a tropical storm potentially affecting your conference.
80
A procurement manager is responsible for a high-risk and medium-value contract for which the procurement organisation is critically dependent on the supplier. The procurement manager has instructed the supplier to submit a disaster recovery plan. Is this action appropriate?
A. Yes - disaster recovery plans should be a standard requirement for all suppliers on all contracts
B. No - the procurement manager is responsible for creating the disaster recovery plan
C. No - disaster recovery planning is only required on high-risk and high-value contracts
D. Yes - the plan will show how the supplier will continue to operate and deliver the service in a disaster situation
D. Yes - the plan will show how the supplier will continue to operate and deliver the service in a disaster situation.
Here's why:
Given that the contract is high-risk and the procurement organization is critically dependent on the supplier, ensuring the supplier's ability to continue operations during a disruption is paramount. A disaster recovery plan outlines the steps the supplier will take to minimize downtime and maintain service delivery in the face of adverse events. This directly addresses the high-risk nature of the contract and the critical dependency.
Let's look at why the other options are less appropriate:
A. Yes - disaster recovery plans should be a standard requirement for all suppliers on all contracts: While having disaster recovery plans is generally good practice, making it a standard requirement for all contracts, regardless of risk or value, might be overly burdensome and unnecessary for low-risk, low-value contracts. The level of due diligence should be proportionate to the risk and criticality.
B. No - the procurement manager is responsible for creating the disaster recovery plan: The supplier is the expert in their own operations and processes. They are best positioned to develop a realistic and effective disaster recovery plan for their business. The procurement manager's role is to specify the requirement and review the plan to ensure it meets the organization's needs.
C. No - disaster recovery planning is only required on high-risk and high-value contracts: While high-value contracts might also warrant disaster recovery plans, the critical factor here is the high-risk and critical dependency. Even a medium-value contract can pose a significant risk if the procurement organization's operations heavily rely on that supplier.
Therefore, requiring a disaster recovery plan from a critically important, high-risk supplier is a prudent and appropriate action for the procurement manager to take.
81
Who should be involved in Risk Management activities?
A. Only Project Team.
B. Only Project Manager.
C. As many stakeholders as practical.
D. All stakeholder except clients.
C. As many stakeholders as practical.
Here's why:
Risk management is most effective when it incorporates diverse perspectives and expertise. Different stakeholders will have unique insights into potential risks and their potential impacts.
82
Recognised risk management strategies to mitigate risks include which of the following? Select TWO that apply.
A. Treat
B. Trust
C. Translate
D. Test
E. Transfer
The two recognised risk management strategies to mitigate risks from the options provided are A. Treat and E. Transfer.
Here's why:
A. Treat (or Mitigate): This involves taking action to reduce the likelihood or impact (or both) of a risk. This could involve implementing controls, changing processes, or developing contingency plans.
E. Transfer: This involves shifting the responsibility for managing a risk and the potential financial burden to a third party. Common methods include purchasing insurance or outsourcing the activity associated with the risk.
83
You acquired an expensive piece of equipment for your project. It is know to be sensitive and fragile in work. Several tasks that require this equipment are on a critical path. What's the BEST action you can do to improve project's chances for success?
A. Buy insurance to cover the costs of repairs.
B. Hire a technical support team to quickly fix the equipment if needed.
C. Find a good expert to operate the equipment.
D. There's nothing you can do.
Correct Answer: B
Answers A and B are good solutions. Buying insurance will help to avoid budget overrun. Finding a good expert will help reduce the probability of breakdown. However, we have tasks on a critical path. It means they tolerate little risks to the Project Schedule. So, having a team on standby to keep the equipment working is the best option here.
84
You are on the call with clients. They say the vendor team they hired to create designs is behind schedule. What should you do?
A. State that your project is also behind the schedule because of it.
B. Log the risk into Risk Register to assess impact.
C. Do nothing. It's not your problem.
D. Contact the vendor to help them out.
Correct Answer: B
Without proper analysis, you can’t state that a risk has an impact on the project. Likewise, you should not assume that the risk has no impact at all. Therefore, always log all possible risks first. Decide later. Learn more about Risk Management Process.
85
The principle of 'utmost good faith' lies at the heart of contracts for the provision of insurance. Is this correct?
A. No, caveat emptor is the fundamental principle of all insurance related contracts.
B. Yes, it places the burden of responsibility on the insurance company to check the facts.
C. No, it is always assumed that there are no material facts unless they are expressly stated.
D. Yes, all relevant information must be fully disclosed otherwise the insurance will be void.
D. Yes, all relevant information must be fully disclosed otherwise the insurance will be void.
Here's why:
Utmost Good Faith (Uberrimae Fidei): This is a fundamental principle of insurance contracts. It means that both the insurer and the insured have a duty to disclose fully and honestly all material facts relevant to the risk being insured. Failure by the insured to disclose relevant information can render the policy void.
Let's look at why the other options are incorrect:
A. No, caveat emptor is the fundamental principle of all insurance related contracts: Caveat emptor means "let the buyer beware." This principle generally applies to sales transactions where the buyer is responsible for checking the quality and suitability of goods before purchasing. It does not apply to insurance contracts, where the principle of utmost good faith places a higher duty of disclosure on both parties, particularly the insured.
B. Yes, it places the burden of responsibility on the insurance company to check the facts: While insurance companies do conduct their own risk assessments, the primary responsibility for disclosing all relevant material facts lies with the insured under the principle of utmost good faith.
C. No, it is always assumed that there are no material facts unless they are expressly stated: This is incorrect. The principle of utmost good faith requires the disclosure of all relevant material facts, even if they are not explicitly asked for by the insurer. The insured has a duty to disclose anything that might influence the insurer's decision to provide coverage or the terms of that coverage.
Therefore, the principle of utmost good faith in insurance contracts necessitates full and honest disclosure of all relevant information by the insured. Failure to do so can have serious consequences, including the invalidation of the policy.
86
After you performed Qualitative Risk Analysis you need to create:
A. A prioritized list of risks.
B. List of risks for additional analysis and investigation.
C. List of urgent risks
D. Watch list
E. All the above
Correct Answer: E
A prioritized list of risks, list of risk for additional analysis and investigation, list of urgent risks, the watch list, AND list of risks grouped by categories are the output of the Qualitative Risk Analysis process
87
Unforeseen events that arise during a contract will be treated as 'force majeure' and all parties will be excluded from liability. Is this correct?
A. Yes, but only if the event is genuinely beyond the control of one or all of the parties.
B. No, a contract is legally binding and the parties cannot be excluded from any liability.
C. Yes, it is not possible for liability to arise for any party if something unexpected happens.
D. No, it is not possible to exclude responsibility for liability that might arise under a contract.
A. Yes, but only if the event is genuinely beyond the control of one or all of the parties.
Here's why:
Force Majeure: This is a legal term referring to unforeseen circumstances that prevent someone from fulfilling a contract. These events are typically outside the reasonable control of the contracting parties and can include natural disasters, war, riots, or other catastrophic events.
Let's look at why the other options are incorrect:
B. No, a contract is legally binding and the parties cannot be excluded from any liability: While contracts are legally binding, they can and often do include clauses that excuse parties from liability in specific circumstances, such as force majeure.
C. Yes, it is not possible for liability to arise for any party if something unexpected happens: This is too broad. Not all unexpected events qualify as force majeure. The event must typically be beyond the parties' control and have a significant impact on their ability to perform the contract.
D. No, it is not possible to exclude responsibility for liability that might arise under a contract: This is incorrect. As mentioned earlier, contracts can contain clauses, like force majeure clauses, that specifically exclude liability for certain types of events.
Therefore, the statement is correct only with the crucial qualification that the unforeseen event must genuinely be beyond the control of the parties involved to be considered force majeure and potentially excuse liability. The specifics of what constitutes force majeure are usually defined within the contract itself and can vary.
88
The conventional methodology for assessing risks involves the evaluation of which of the following? Select TWO that apply.
A. Contingency.
B. Responsibility.
C. Probability.
D. Recovery.
E. Impact.
F. Accountability.
The two elements that are part of the conventional methodology for assessing risks are C. Probability and E. Impact.
Here's why:
Probability: This refers to the likelihood that a specific risk will occur. It's often assessed using qualitative scales (e.g., Low, Medium, High) or quantitative measures (e.g., percentages).
Impact: This refers to the potential consequence or severity if the risk does occur. Like probability, it's often assessed using qualitative scales (e.g., Low, Medium, High) or quantitative measures (e.g., financial loss, schedule delay).
Risk assessment conventionally involves evaluating these two dimensions to determine the overall significance of a risk and to prioritize it for further action. Risk value or score is often calculated as a function of probability and impact (e.g., Probability x Impact).
89
"A network of manufacturers and service providers that work together to convert and move goods from the raw materials stage through to the end user" is the definition of
A. Supply chain.
B. Operations management.
C. Service operations.
D. Operations function.
The correct answer is A. Supply chain.
A supply chain encompasses all the stages involved in the flow of goods, from the initial sourcing of raw materials to the final delivery of the finished product to the end consumer. It includes various entities such as manufacturers, suppliers, transporters, warehouses, retailers, and the customers themselves, all working together in a network.
90
Major International Manufacturing (MIM) has a strict risk management policy, requiring all risks to be fully evaluated and appropriate action taken. A recent example was a risk that for which MIM was able to take out insurance to provide full protection. Another risk arose because a trusted supplier had short-term performance issues. MIMG was comfortable accepting this risk as the supplier was aware of the issue and had promised it was now resolved. MIM's approaches to dealing with these two risks can be best described as which of the following?
1. Terminate.
2. Tolerate.
3. Transfer.
4. Treat.
A. 1 and 2.
B. 2 and 3.
C. 3 and 4.
D. 4 and 1.
The correct answer is B. 2 and 3.
Here's why:
Risk 1: MIM took out insurance to provide full protection. This action describes 3. Transfer. By purchasing insurance, MIM is transferring the financial risk of the event to the insurance company.
Risk 2: MIM was comfortable accepting the risk of the supplier's short-term performance issues. This action describes 2. Tolerate. MIM decided to accept the potential impact of the supplier's short-term issues, likely because the supplier was trusted and had a plan for resolution, making the risk acceptable within MIM's risk appetite.
91
Which of these is NOT a flow that moves up and down the supply chain?
A. Procedural
B. Monetary
C. Information
D. Physical
A. Procedural.
Here's why:
Monetary flow: Money moves down the supply chain from the buyer to the seller for goods and services, and sometimes up in the form of rebates or refunds.
Information flow: Information moves both up (e.g., forecasts, orders) and down (e.g., delivery schedules, instructions) the supply chain.
Physical flow: Goods and materials move down the supply chain from raw materials to the end consumer, and sometimes up in the form of returns or recycling.
Procedural aspects, while governing how the supply chain operates, are not a flow of tangible or intangible items moving through it in the same way as money, information, or physical goods. Procedures are the rules and processes that facilitate these flows.
92
Dr Dick decided to stop practising when malpractice insurance premiums became too high for him to afford. He is managing risk by
A. Transferring
B. Tolerating
C. Terminating
D. Treating
C. Terminating.
Here's why:
Terminating the practice is how Dr. Dick is managing the risk. He is eliminating the activity (practicing medicine) that exposes him to the risk of malpractice claims and the associated high insurance premiums.
93
A fire at the depot of a transport company destroys its vehicle fleet. It is insured and so in time the vehicles can be replaced. However, in the short-term it cannot fulfil customer orders and so loses business. This loss of business is known as which of the following?
A. Consequential loss.
B. Direct loss.
C. Positive loss.
D. Reputational loss.
A. Consequential loss.
Here's why:
Consequential loss (also known as indirect loss) is a financial loss that occurs as a consequence of a direct loss. In this scenario, the direct loss is the destruction of the vehicle fleet by the fire. The consequential loss is the loss of business and revenue that the transport company suffers because it cannot fulfill customer orders due to the lack of vehicles.
Let's look at why the other options are incorrect:
B. Direct loss: This refers to the immediate physical damage (the destroyed vehicles).
C. Positive loss: This is not a standard term in risk management or insurance. Loss generally implies a negative outcome.
D. Reputational loss: While the inability to fulfill orders might eventually damage the company's reputation, the immediate loss described is the loss of business and revenue, which is a direct financial consequence of the initial event. Reputational damage would be a secondary, potential outcome.
94
Software Development Inc (SDI) develops and markets a range of business applications and products. It has its own product development resource but also uses external contractors where expertise is not available in house. SDI is just about to start working with a small organisation called XNX Developers (XNX) on a highly secret new development currently known as Project Y. SDI and XNX have worked together successfully in the past. Ultimately, when the development is completed, SDI will pay XNX a one-off fee for exclusive and full ownership of Project Y.
XNX is happy with this arrangement as it needs an injection of funds to support the development of its own product range and bank finance is not available. SDI and XNX have also reached agreement on XNX's acceptance to compensate SDI for potential future liability on Project Y in respect of the development work it has undertaken.
Based on the information provided, which of the following clauses will be a priority for SDI to include in the contract to address its specific needs?
1. Intellectual property rights
2. Force majeure
3. Jurisdiction
4. Indemnity
A. 1 and 2 only
B. 2 and 3 only
C. 3 and 4 only
D. 1 and 4 only
The priority clauses for SDI in this contract are 1. Intellectual property rights and 4. Indemnity. Therefore, the correct answer is D. 1 and 4 only.
Here's why:
1. Intellectual property rights: The scenario explicitly states that SDI will pay XNX a one-off fee for exclusive and full ownership of Project Y once the development is complete. Therefore, clearly defining the ownership and transfer of intellectual property rights in the contract is crucial for SDI to secure its investment and future control over the new development.
4. Indemnity: The agreement that XNX will compensate SDI for potential future liability on Project Y in respect of the development work it has undertaken directly relates to an indemnity clause. SDI needs this clause to protect itself from potential legal or financial repercussions arising from XNX's work on the project. This is a significant point of negotiation and a priority for SDI to have clearly documented in the contract.
Let's look at why the other options are less of an immediate priority based on the provided information:
2. Force majeure: While force majeure clauses are standard in many contracts to address unforeseen events, the immediate priorities for SDI in this specific scenario revolve around securing ownership of the developed product and protecting themselves from liabilities arising from XNX's work.
3. Jurisdiction: A jurisdiction clause, which specifies the governing law and where disputes will be resolved, is important for any contract, especially one involving different organizations. However, given the emphasis on ownership and liability in the provided context, it is a secondary concern compared to intellectual property rights and indemnity for SDI in this particular situation.
95
Which of the following are regarded as core international labour standards?
1. Freedom from casual labour
2. Freedom from untrained labour
3. Freedom from forced labour
4. Freedom from discrimination
A. 1 and 2
B. only 2
C. 2 and 3
D. only 3
E. 3 and 4
F. only 1
G. 1 and 4
The core international labour standards, as defined by the International Labour Organization (ILO), include 3. Freedom from forced labour and 4. Freedom from discrimination.
Therefore, the correct answer is E. 3 and 4.
Here's a brief explanation of why these are core standards and why the others are not typically included in the fundamental principles:
Freedom from forced labour: This principle prohibits all forms of forced or compulsory labour.
Freedom from discrimination: This principle promotes equality of opportunity and treatment in employment and occupation, without distinction based on race, color, sex, religion, political opinion, national extraction, or social origin.
96
Q36. ISO20400 _________ the UN guiding principles, ISO26000-social responsibility, ISO31000 Risk management and ISO14001 for environmental management
A. Replaces
B. Supersedes
C. Complements
D. Clarifies
C. Complements.
Here's why:
ISO 20400 provides guidelines for sustainable procurement. It doesn't replace or supersede the other listed standards and principles. Instead, it works alongside them, providing a specific focus on how organizations can integrate sustainability into their purchasing processes.
The UN Guiding Principles on Business and Human Rights outline the state's and companies' duties and responsibilities to prevent and address human rights abuses. ISO 20400 can help organizations implement the corporate responsibility to respect human rights within their procurement activities.
ISO 26000 offers broader guidance on social responsibility. ISO 20400 aligns with and supports the social responsibility principles outlined in ISO 26000 within the specific context of procurement.
ISO 31000 provides principles and guidelines for risk management. Sustainable procurement, as guided by ISO 20400, involves managing various risks, including environmental and social ones, thus complementing the broader risk management framework of ISO 31000.
ISO 14001 specifies requirements for an environmental management system. ISO 20400 helps organizations extend their environmental considerations into their supply chain through sustainable procurement practices, thus complementing ISO 14001.
97
"The system by which companies are directed and controlled is a definition of?"
A. Corporate Governance
B. Ethical Standards
C. The law
D. Organisational Structure
The correct answer is A. Corporate Governance.
Corporate governance is the system of rules, practices, and processes by which a company is directed 1 and controlled. It essentially involves balancing the interests of 2 a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, the government, and the community. 3
98
Risk -According to ISO 31000, risk is the "effect of uncertainty on ___________"
A. Outcomes
B. Objectives
C. Outputs
D. Organisations
The correct answer is B. Objectives.
According to ISO 31000:2018, risk is defined as the "effect of uncertainty on objectives".
Uncertainty, in this context, refers to the state of deficiency of information related to an event, its consequence, or likelihood. Objectives can be financial, operational, strategic, or any other goals an organization is trying to achieve. Risk management aims to identify, analyze, evaluate, and treat risks that could affect the achievement of these objectives.
99
To understand a suppliers financial position buying organisations should focus upon
A. Cash flow-suppliers ability to meet short term debt
B. Gearing- amount of long term debt
C. Profitability ratios
D. All the above
The correct answer is D. All the above.
Here's why:
A. Cash flow - supplier's ability to meet short-term debt: Analyzing a supplier's cash flow is crucial to assess their immediate liquidity and ability to pay their short-term obligations (e.g., accounts payable, salaries). A healthy cash flow indicates financial stability in the near term.
B. Gearing - amount of long-term debt: Gearing (also known as leverage or debt-to-equity ratio) indicates the extent to which a supplier is financed by debt. High gearing can signal higher financial risk, as the supplier has significant long-term obligations to meet.
C. Profitability ratios: Profitability ratios (e.g., gross profit margin, net profit margin, return on assets) reveal how efficiently a supplier is generating profits from its operations. Consistent profitability is a key indicator of long-term financial health and sustainability.
By considering all three of these areas, buying organizations can gain a comprehensive understanding of a supplier's financial position, both in the short term and the long term, and assess their overall financial stability and risk.
100
"Sustainable development is development that meets the _________ of the present without compromising the ability of future generations to meet their own needs"
A. Wants
B. Needs
C. Requirements
D. Obligations
B. Needs.
This is the widely accepted definition of sustainable development as outlined in the Brundtland Report (Our Common Future) published in 1987 by the World Commission on Environment and Development (WCED). The full quote is:
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
101
The seven core subjects and issues pertaining to social responsibility referred to in ISO26000 and ISO20400 are :
a. Quality management
b. Customer Service
c. Organizational governance
d. Human rights
e. Working Hours
f. Labour practices
g. The environment
h. Fair operating practices
i. Consumer issues
j. Reverse Logistics
k. Life cycle costing
l. Community involvement and development
m. Transparency
The seven core subjects and issues pertaining to social responsibility referred to in ISO 26000 are:
c. Organizational governance
d. Human rights
f. Labour practices (which would encompass aspects of e. Working Hours)
g. The environment
h. Fair operating practices
i. Consumer issues
l. Community involvement and development
While some of the other options listed are important aspects of business operations and sustainability, they are not categorized as the seven core subjects of social responsibility within the framework of ISO 26000. ISO 20400, which focuses on sustainable procurement, aligns with these core subjects of social responsibility from ISO 26000.
102
Replacing damaged/faulty products and materials would be classed as:
A. Indirect loss
B. Product loss
C. Direct loss
D. Product liability claim
C. Direct loss.
Here's why:
Direct loss refers to the immediate financial harm resulting from a specific event. In this case, the damage or fault in the products and materials directly leads to the cost of replacement.
Let's look at why the other options are less appropriate:
A. Indirect loss (or Consequential loss): This refers to losses that occur as a consequence of the direct loss. For example, if faulty materials cause a production line to shut down, the lost production and revenue would be an indirect loss.
B. Product loss: While technically accurate in a general sense, "direct loss" is the more specific and commonly used term in risk management and accounting to describe the cost of replacing damaged or faulty items.
D. Product liability claim: This refers to a legal claim made by a third party who has suffered harm due to a faulty product. While the replacement of the product might be a consequence of such a claim, the act of replacing the damaged/faulty goods itself is a direct cost or loss for the organization.
103
According to ethical labour standards such as SA8000 the normal workweek shall not on a regular basis exceed:
A. 40 hours
B. 48 hours
C. 50 hours
D. 60 hours
According to ethical labour standards such as SA8000, the normal workweek shall not on a regular basis exceed B. 48 hours.
SA8000 is a globally recognized social accountability standard that includes requirements for working hours, stating that the regular workweek should not exceed 48 hours and that overtime should be voluntary and compensated at a premium rate, with limits on regular overtime.
104
The ETI base code has
A. 6 provisions
B. 7 provisions
C. 8 provisions
D. 9 provisions
The ETI (Ethical Trading Initiative) base code has D. 9 provisions.
These nine core principles cover areas such as:
Employment is freely chosen
Freedom of association and the right to collective bargaining are respected
Working conditions are safe and hygienic
Child labour shall not be used
Living wages are paid
Working hours are not excessive
No discrimination is practised
Regular employment is provided
No harsh or inhumane treatment is allowed
105
One of the benefits of using NEC standard contracts is:
A. No training is required to use them.
B. They are written in the present tense in plain English
C. No need for bespoke amendments
D. Variations to price and delivery are not required
The correct answer is B. They are written in the present tense in plain English.
Here's why:
NEC (New Engineering Contract) standard forms are intentionally drafted using clear, simple language in the present tense to reduce ambiguity and the potential for misinterpretation. This aims to make the contracts more accessible and easier for all parties involved to understand, thereby minimizing disputes.
106
A disadvantage of using standard form contracts is that:
A. Suppliers are given advantageous terms
B. There may be training costs
C. Increases the time and cost in contract development
D. Less likely to contain the correct legal terminology without recourse to third party experts.
B. There may be training costs.
Here's why:
B. There may be training costs: While standard forms aim for clarity, their specific clauses, processes, and terminology might still require training for procurement professionals and suppliers to ensure consistent understanding and application.
107
The legal principle of utmost good faith means:
A. Both parties trust each other
B. Both parties have complete faith in each other
C. Both parties must be accurate and fully disclose all information
D. The insured can rely on the insurance company to pay any claim
C. Both parties must be accurate and fully disclose all information.
Here's why:
Utmost good faith (Uberrimae Fidei) is a fundamental principle in insurance law. It requires both the insurer and the insured to act honestly1 and disclose all material facts relevant to the risk being insured. This duty of disclosure is more extensive than the general principle of "good faith" that applies to most contracts.
108
What risk is managed by having an inspection clause prior to acceptance?
A. Intellectual property infringement
B. Product defect
C. Financial failure
D. Late delivery
B. Product defect.
Here's why:
Inspection clauses in contracts typically outline the buyer's right to examine goods or services before formally accepting them.1 This process allows the buyer to identify any product defects, quality issues, or non-conformities with the agreed-upon specifications.1 By inspecting before acceptance, the buyer can reject faulty goods, request repairs, or negotiate adjustments, thereby mitigating the risk of receiving and paying for substandard products.2
109
A claims adjuster will:
A. Help the insured claim what is due
B. Limit the liability of the insurance company
C. Determines the insurance premium
D. Review a claim and whether it is valid
D. Review a claim and whether it is valid.
Here's a breakdown of their responsibilities:
Review and Investigate: Claims adjusters investigate insurance claims to determine their validity based on the policy terms, conditions, and the circumstances of the loss. This often involves gathering information, interviewing parties involved, reviewing documentation (like police reports, medical records, repair estimates), and assessing the damage.
Determine Coverage: They analyze the insurance policy to see if the claimed loss is covered under the policy's provisions.
Assess Damages: If the claim is deemed valid, they evaluate the extent of the loss or damage to determine a fair settlement amount. This might involve getting independent appraisals or estimates.
Negotiate Settlements: They negotiate with the insured or their representatives to reach a settlement agreement.
Manage the Claims Process: They guide the insured through the claims process, ensuring necessary paperwork is completed and providing updates.
While a claims adjuster's work ultimately leads to the insured receiving what is due if the claim is valid, their initial and core function is the review and validation of the claim. Limiting the insurance company's liability is a goal in the sense of only paying valid claims according to the policy, but their primary task isn't to arbitrarily reduce payouts on legitimate claims. Determining the insurance premium is the role of an underwriter, not a claims adjuster.
110
In an NEC contract if an event occurs that the contractor considers to be a compensation event, they must then
A. Send a quotation to the project manager within 3 weeks
B. Notify the project manager within 8 weeks of becoming aware of the event
C. Cease work until the claim is agreed
D. Change the risk register
The correct answer is B. Notify the project manager within 8 weeks of becoming aware of the event.
According to standard NEC contract conditions, the contractor has a specific timeframe to notify the project manager of an event they believe is a compensation event. While the exact clause and time limit might vary slightly depending on the specific NEC form and any amendments, a common timeframe is 8 weeks from when the contractor became aware of the event.
Let's look at why the other options are generally incorrect:
A. Send a quotation to the project manager within 3 weeks: While the contractor will eventually need to submit a quotation for the compensation event, the initial and more immediate requirement is to notify the project manager of the event itself. The quotation usually follows the notification and the project manager's instruction to provide one.
C. Cease work until the claim is agreed: Ceasing work unilaterally is generally not permitted under NEC contracts and could be considered a breach of contract. Work should continue unless instructed otherwise by the project manager.
D. Change the risk register: The risk register is typically maintained collaboratively by the project manager and the contractor. While a compensation event might trigger an update to the risk register, the contractor's immediate obligation is to notify the project manager.
111
Indemnity clauses
A. Are a way of transferring risk
B. Are a form of insurance
C. Have defined liquidate damages
D. Have no monetary limit
A. Are a way of transferring risk.
Here's why:
An indemnity clause is a contractual provision where one party (the indemnitor) agrees to protect another party (the indemnitee) against financial loss or liability arising from specified events. Essentially, the indemnitor takes on the risk of certain potential losses that the indemnitee might face, thus transferring that risk.
Let's look at why the other options are incorrect:
B. Are a form of insurance: While indemnity clauses and insurance both deal with financial protection against potential losses, they are distinct mechanisms. Insurance involves paying premiums to an insurer who agrees to cover certain losses, whereas an indemnity is a direct contractual obligation between the parties involved in the contract.
C. Have defined liquidated damages: Liquidated damages are a pre-agreed sum payable in the event of a specific breach of contract (e.g., late completion). Indemnity clauses cover losses arising from various events, not necessarily specific breaches, and don't inherently have a pre-defined damage amount.
D. Have no monetary limit: Indemnity clauses can and often do have monetary limits specified within the contract to cap the indemnitor's liability. It's not a characteristic that they universally have no monetary limit.
112
Compensation events in NEC contracts will result in additional payment being made to the contractor.
A. Yes but only in exceptional circumstances
B. No only the date is adjusted
C. Yes but may also result in adjustment of the completion date or key dates.
D. No - a new contract is agreed
The correct answer is C. Yes but may also result in adjustment of the completion date or key dates.
Here's why, according to the principles of NEC contracts:
Compensation events under NEC contracts are defined events that, if they occur, entitle the contractor to be compensated for any resulting delay and/or additional cost.
The aim of the compensation event mechanism is to keep the contract fair and to ensure the contractor is not penalized for events that are not their fault and impact their ability to deliver the works as planned.
Therefore, a valid compensation event will typically lead to an adjustment of the Prices (additional payment) to cover the contractor's increased costs.
Crucially, many compensation events also have an impact on the project schedule. In such cases, the Completion Date and potentially other Key Dates will also be adjusted to reflect the time lost due to the event.
113
A loss assessor:
A. Can negotiate and settle the claim on your behalf
B. Is employed by the insurance company to settle the claim
C. Is the person who decides the initial insurance premium?
D. Is the broker or agent through which the policy is held
A. Can negotiate and settle the claim on your behalf.
Here's why:
A loss assessor (also known as a public loss adjuster) is an independent professional hired by the policyholder (you) to help with your insurance claim. Their role is to:
Investigate the loss: They will assess the damage and gather evidence to support your claim.
Prepare and submit the claim: They will help you complete the necessary paperwork and present your claim to the insurance company in the best possible light.
Negotiate with the insurer: They act as your advocate and negotiate with the insurance company's loss adjuster to reach a fair settlement on your behalf.
Let's look at why the other options are incorrect:
B. Is employed by the insurance company to settle the claim: This describes a loss adjuster (also called a claims adjuster) who works for the insurance company and represents their interests.
C. Is the person who decides the initial insurance premium? This is the role of an underwriter working for the insurance company.
D. Is the broker or agent through which the policy is held: A broker or agent helps you find and purchase an insurance policy but typically doesn't directly handle the claims settlement process on your behalf after a loss occurs (though they can offer guidance).
114
The RTO in business continuity planning is;
A. Recovery Time Objective
B. Required Time Outage
C. Response Time Objective
D. Recovery Target Outage
A. Recovery Time Objective.
Here's what RTO stands for in the context of business continuity planning:
Recovery Time Objective (RTO): This is the targeted duration of time within which a business process must be restored after a disaster or disruption to avoid unacceptable consequences1 associated with a break in business continuity.23 It essentially defines how quickly you need to get things back up and running
115
An underwriter will:
A. Help the insured claim what is due
B. Limit the liability of the insurance company
C. Determines the insurance premium
D. Review a claim and whether it is valid
C. Determines the insurance premium.
Here's why:
Underwriters are primarily responsible for assessing the risk associated with insuring a particular applicant or asset. Based on this risk assessment, they determine the appropriate premium to charge for the insurance coverage.
Let's look at why the other options are incorrect:
A. Help the insured claim what is due: This is the role of a claims adjuster or a loss assessor (acting on behalf of the insured).
B. Limit the liability of the insurance company: While underwriters consider potential liabilities when setting premiums and policy terms, their main function isn't actively limiting liability on existing claims. This is more the focus of the claims department.
D. Review a claim and whether it is valid: This is also the primary responsibility of a claims adjuster.
116
Stakeholder salience model builds upon the mendelow matrix by considering:
A. Power, urgency & dynamism
B. Influence, urgency & legitimacy
C. Power urgency & legitimacy
D. Influence, dynamism & legitimacy
C. Power, urgency & legitimacy.
The stakeholder salience model, developed by Mitchell, Agle, and Wood (1997), builds upon Mendelow's power-interest matrix by adding the dimension of legitimacy. It identifies stakeholder salience based on the presence or absence of three attributes:
Power: The stakeholder's ability to influence the organization.
Legitimacy: The stakeholder's relationship with the organization being proper, desirable, or appropriate.
Urgency: The degree to which stakeholder claims demand immediate attention.
Stakeholders are categorized into different types (dormant, discretionary, demanding, dominant, dangerous, dependent, and definitive) based on the combination of these attributes they possess, which in turn determines their salience to the organization.
117
To be successful BCM has to become part of the _________ of your organisation. This can be achieved through a combination of awareness raising and training.
A. Strategy
B. Policy
C. Culture
D. Structure
C. Culture.
Here's why:
For Business Continuity Management (BCM) to be truly successful and embedded within an organization, it needs to become ingrained in the organizational culture. This means that business continuity awareness, preparedness, and resilience are not just a set of plans or policies, but are part of the everyday mindset and behavior of employees at all levels.
Awareness raising and training are key mechanisms for fostering this culture. When BCM is part of the culture:
Employees understand their roles and responsibilities in maintaining business continuity.
Resilience becomes a consideration in decision-making processes.
There is a proactive approach to identifying and mitigating potential disruptions.
The organization is better equipped to respond effectively when incidents occur.
While strategy, policy, and structure are important elements of BCM, they are less likely to guarantee long-term success without a supportive and embedded culture. A strong BCM culture ensures that the plans and structures are actively used and maintained.
118
Subjective measures to rate risk are;
A. Factual
B. Reliable
C. Opinions
D. Quantitative
C. Opinions.
Here's why:
Subjective measures rely on personal judgment, experience, and interpretation. They are influenced by individual perspectives and can vary from person to person. Opinions are inherently subjective.
Let's look at why the other options are not subjective measures:
A. Factual: Facts are objective and based on evidence or data that can be verified.
B. Reliable: Reliability refers to the consistency and dependability of a measure, whether subjective or objective. A subjective measure can be reliable if different individuals consistently provide similar ratings.
D. Quantitative: Quantitative measures use numerical data and statistical analysis, making them objective rather than subjective.
119
As part of an organisation's risk management process, when considering risk and uncertainty, the risk team must be aware that
A. risk assessment is the sole method of reducing uncertainty.
B. risk can apply to both opportunities and threats to the organisation.
C. uncertainty should always be considered completely separately from risk.
D. uncertainty should only be considered when reviewing long-term objectives.
B. risk can apply to both opportunities and threats to the organisation.
Here's why:
Risk in a modern risk management context, particularly as defined by standards like ISO 31000, is understood as the effect of uncertainty on objectives. These objectives can be positive (opportunities) or negative (threats). Therefore, risk management involves not only mitigating potential harm but also identifying and exploiting potential gains.
120
Having a plan so that your organisation can continue to function with as little disruption as possible is:
A. Disaster recovery planning
B. Contingency planning
C. Business Continuity planning
D. Disruption planning
C. Business Continuity planning.
Here's why:
Business Continuity Planning (BCP) is the holistic process of developing and implementing strategies and procedures to ensure that an organization can continue to operate1 and deliver its critical products and services following a disruptive event. It encompasses a wide range of potential disruptions and aims for minimal impact on business operations.
121
Risk assessment consists of: 1 point
Identifying the risk, analysing the risk and then _________
A. Risk Options
B. Risk Evaluation
C. Risk treatment
D. Risk Quantification
B. Risk Evaluation.
The typical steps in a risk assessment process are:
Risk Identification: Determining what could go wrong.
Risk Analysis: Understanding the likelihood and impact of the identified risks.
Risk Evaluation: Comparing the results of the risk analysis with risk criteria to determine whether the risk and/or its magnitude is acceptable or1 requires treatment.
Following risk evaluation, the next step would typically be Risk Treatment (option C), which involves selecting and implementing actions to address the risks. Risk Quantification (option D) is often a part of risk analysis, where numerical values are assigned to the likelihood and impact of risks. Risk Options (option A) would be considered during the risk treatment phase.
122
An important part of Business continuity management is establishing the
A. RPP and RTO
B. RPO and RTT
C. RPO and RTO
D. WRT and RTT
C. RPO and RTO.
Here's why:
RPO (Recovery Point Objective): This defines the maximum acceptable amount of data loss (measured in time) after a disruptive event. It essentially answers the question, "How much data are we willing to lose?"
RTO (Recovery Time Objective): This defines the targeted duration of time within which a business process must be restored after a disaster or disruption to avoid unacceptable consequences.1 It answers the question, "How long can we be down?"
123
One of the primary reasons that an organisation should monitor and regularly review its risk management process is to
A. consider whether lessons could be learned for future management of risks.
B. ensure that all significant risks are eliminated immediately.
C. evidence that all risks are measured in financial terms only.
D. evidence that an internationally-recognised framework is followed at all times
A. consider whether lessons could be learned for future management of risks.
Here's why:
Regular monitoring and review of the risk management process allow an organization to:
Identify what worked well and what didn't: This helps in understanding the effectiveness of implemented risk treatments and the overall process.
Learn from past experiences: Both successes and failures in managing risks can provide valuable insights for improving future risk management activities.
Adapt to changes: The internal and external environment of an organization is constantly evolving, introducing new risks and altering existing ones. Regular review ensures the risk management process remains relevant and effective in this changing landscape.
Improve efficiency and effectiveness: By identifying areas for improvement, the organization can optimize its risk management processes, making them more efficient and effective over time.
124
In the normal distribution with mean m and a standard deviation S:
A. 99.7% of the observations fall within 1 std. dev. either side of the mean m.
B. 99.7% of the observations fall within 2 std. dev. either side of the mean m.
C. 99.7% of the observations fall within 3 std. dev. either side of the mean m
D. 99.7% of the observations fall within 6 std. dev. either side of the mean m
is C. 99.7% of the observations fall within 3 std. dev. either side of the mean m.
This is a fundamental property of the normal distribution, often referred to as the 68-95-99.7 rule or the Empirical Rule:
Approximately 68% of the data falls within one standard deviation of the mean (m±1S).
Approximately 95% of the data falls within two standard deviations of the mean (m±2S).
Approximately 99.7% of the data falls within three standard deviations of the mean (m±3S).
Therefore, option C accurately describes this rule for the normal distribution.
125
Q75. Which of the following is NOT a typical event requiring disaster recovery:
A. Fire
B. Floods
C. Earthquakes
D. Supplier Failure
E. Cyber attacks
F. Power Outages
G. Geopolitical events
NOT a typical event requiring disaster recovery (in the traditional IT sense) from the list is D. Supplier Failure.
Here's why:
Disaster recovery (DR) traditionally focuses on the recovery of IT infrastructure, systems, and data following a catastrophic event that disrupts the physical environment or technology. The other options (Fire, Floods, Earthquakes, Cyber attacks, Power Outages, Geopolitical events) can all cause significant damage or disruption to IT systems and require DR procedures to restore them.
Supplier Failure, while a serious business continuity risk, typically requires different mitigation strategies. These might include having alternative suppliers, contractual agreements with penalties for failure, or bringing the function in-house. While IT systems might be affected by a supplier failure (e.g., if the supplier provides a critical IT service), the primary response isn't usually a technical "disaster recovery" of the organization's own IT infrastructure. Instead, it involves implementing the business continuity plan to address the loss of that supplier.
Therefore, while supplier failure is a significant business risk that needs to be planned for in business continuity, it's not typically classified as an event requiring disaster recovery in the same way as the other options that directly impact an organization's physical assets or IT infrastructure.
126
The ISO 31000 standard separates risk management areas into
A. frameworks, processes and audit.
B. principles, frameworks and compliance.
C. principles, frameworks and processes.
D. principles, processes and compliance.
The ISO 31000 standard separates risk management areas into C. principles, frameworks and processes.
The standard is structured around these three key components:
Principles: These are the fundamental concepts that underpin effective risk management.
Framework: This provides the organizational arrangements for embedding risk management throughout the organization.
Processes: These are the systematic activities involved in managing risk.
127
A risk register has been produced for a large engineering company. What is a key difficulty of such a register?
A. It is impossible to update it on a regular basis.
B. It is likely to list only a very small number of risks.
C. It may fail to take account of correlations between risks.
D. Stakeholders must be consulted upon all risk management decisions
C. It may fail to take account of correlations between risks.
Here's why:
Complexity and Interdependencies: Large engineering companies face numerous interconnected risks. A risk register might list individual risks but struggle to capture how these risks can influence or exacerbate each other. For example, a delay in material delivery (Risk A) could impact the project timeline (Risk B), which in turn could lead to contractual penalties (Risk C). Failing to recognize these correlations can lead to an underestimation of the overall risk exposure.
Let's look at why the other options are less likely to be the key difficulty:
A. It is impossible to update it on a regular basis: While maintaining a risk register for a large organization requires effort, it is not impossible. Regular updates are crucial for its effectiveness and are a standard practice in risk management.
B. It is likely to list only a very small number of risks: For a large engineering company, a comprehensive risk register is likely to contain a significant number of risks across various aspects of the business. The challenge is often managing a large number of risks effectively, not having too few.
D. Stakeholders must be consulted upon all risk management decisions: While stakeholder consultation is important in risk management, it's not inherently a "difficulty" of the risk register itself. Effective communication and consultation are good practices. The difficulty lies in managing the diverse perspectives and priorities of various stakeholders, but this isn't a direct flaw of the register.
128
Risk management aims to:
A. Eliminate all risks
B. Avoid risks
C. Manage risks to an acceptable level
D. Transfer risk to suppliers
C. Manage risks to an acceptable level.
Here's why:
Risk management is a process of identifying, assessing, and controlling threats to an organization's capital and earnings.1 The ultimate goal is not to eliminate all risks, as some level of risk is inherent in most activities and can even be necessary for innovation and growth. Instead, the aim is to understand and manage risks to a level that the organization is willing to accept in pursuit of its objectives.
129
Recognised risk management strategies to mitigate risks include which of the following? Select TWO that apply.
A. Treat
B. Trust
C. Take
D. Transfer
E. Test
he two recognised risk management strategies to mitigate risks from the list are:
A. Treat: This involves taking action to reduce the likelihood or impact of a risk. This can include implementing controls, modifying processes, or investing in preventative measures.
D. Transfer: This involves shifting the responsibility or financial burden of a risk to a third party, often through insurance or outsourcing.
Let's look at why the other options are not typically considered risk mitigation strategies:
B. Trust: Trust is a factor in relationships but not a direct risk mitigation strategy.
C. Take: "Take" in a risk context usually refers to risk acceptance, where the organization acknowledges the risk and decides to bear it. This is not a mitigation strategy.
E. Test: Testing can be part of verifying the effectiveness of risk treatments or identifying vulnerabilities, but it is not a risk mitigation strategy in itself.
130
If an organisation takes out an insurance policy to cover a supply risk- this is what type of risk strategy?
A. Tolerate
B. Take
C. Transfer
D. Treat
E. Terminate
C. Transfer.
By taking out an insurance policy, the organisation is transferring the financial risk associated with a supply disruption to the insurance company. In exchange for a premium, the insurer agrees to cover certain losses if the supply risk materializes.
131
The THREE phases of a business contingency plan - select all THREE that apply
A. Risk identification
B. Business Impact plan
C. Incident response
D. Disaster recovery plan
E. Risk Treatment
F. Business Continuity plan
C. Incident response: This phase outlines the immediate actions taken when a disruption occurs to minimize damage and ensure safety.
D. Disaster recovery plan: This phase focuses on the technical recovery of IT systems and infrastructure.
F. Business Continuity plan: This overarching phase details how the entire organization will continue critical business functions during and after a disruption.
While B. Business Impact plan (Business Impact Analysis - BIA) is a crucial part of developing a business continuity plan, it's not typically considered one of the distinct phases of the plan itself. Risk identification (A) and Risk Treatment (E) are also part of the broader risk management process that informs the business contingency plan.
132
Which of the following is true about the concept of 'normal distribution'? Select THREE that apply.
A. It is based on probability.
B. It is depicted as a straight line.
C. The values are evenly distributed.
D. It is symmetric in shape.
E. It shows the variation in extreme points.
F. Most values are around the mean.
A. It is based on probability. The normal distribution is a probability distribution that describes how the values of a variable are distributed.
D. It is symmetric in shape. The normal distribution curve is bell-shaped and symmetrical around its mean.
F. Most values are around the mean. Due to the shape of the normal distribution, the majority of the data points cluster closely around the average (mean) value.
Let's look at why the other options are incorrect:
B. It is depicted as a straight line. The normal distribution is depicted as a bell-shaped curve, not a straight line.
C. The values are evenly distributed. The values are not evenly distributed; they are concentrated around the mean and become less frequent as you move away from the mean.
E. It shows the variation in extreme points. While a normal distribution does include extreme points, it emphasizes the concentration of values around the mean, not the variation in the extremes. The tails of the distribution represent less frequent extreme values.
Sources and related content
133
Which of the following are types of direct loss? Select TWO that apply
A. Stock burnt in fire
B. Reputational damage
C. Loss of future customers
D. Loss of sales
E. Damage to assets
The two types of direct loss from the list are:
A. Stock burnt in fire: This is a direct physical loss of inventory.
E. Damage to assets: This refers to physical harm or destruction of tangible property.
134
Which of the following is an example of a supply chain's internal risk?
A. Breakdown of information and communications technology (ICT)
B. New entrants to the market increasing the intense of industrial competition
C. Political threats and imbalances
D. Change of legislation and regulations
A. Breakdown of information and communications technology (ICT).
Here's why:
Internal risks within a supply chain are those that originate within the organization's own operations and systems. A breakdown of ICT directly affects the internal processes of managing the supply chain, such as communication with suppliers, order processing, inventory management, and logistics.
135
Which of the following are the correct characteristics of an indirect loss?
1. Indirect loss cannot be easily quantified
2. Indirect loss can be easily documented
3. Indirect loss is difficult to insure against
4. Indirect loss requires a lot of money to insure
A. 2 and 4
B. 1 and 3
C. 2 and 3
D. 1 and 4
B. 1 and 3.
Here's why:
1. Indirect loss cannot be easily quantified: Indirect losses, also known as consequential losses, are often more difficult to measure precisely. They involve ripple effects and can be harder to directly attribute a specific financial value to compared to direct physical damage. For example, the loss of future profits due to reputational damage is an indirect loss that can be challenging to quantify accurately.
3. Indirect loss is difficult to insure against: Insurance policies often focus on covering direct physical losses. Coverage for indirect or consequential losses can be more restricted, require specific policy extensions (like business interruption insurance), and may have more stringent conditions or limitations. Insurers find it harder to predict and price these less tangible losses.
136
Which of the following is a sustainable procurement standard?
A. ISO 14001
B. ISO 9000
C. ISO 31000
D. ISO 20400
D. ISO 20400.
Here's why:
ISO 20400:2017 - Sustainable procurement — Guidance: This international standard provides guidance for organizations on sustainable procurement, integrating sustainability principles into their purchasing processes. It addresses environmental, social, and economic aspects of sustainability.
Let's look at why the other options are related but not specifically sustainable procurement standards:
A. ISO 14001: This standard specifies requirements for an environmental management system. While relevant to sustainability, it's broader than just procurement.
B. ISO 9000: This is a series of standards related to quality management systems. It focuses on meeting customer and other stakeholder needs consistently.
C. ISO 31000: This standard provides principles and guidelines on risk management. While sustainability risks can be managed using this framework, it's not a specific standard for sustainable procurement practices.
137
A risk associated with brand is likely to affect which of the following for an organization?
A. Positioning
B. Compliance
C. Competitors
D. Assets
A. Positioning.
Here's why:
Positioning: A brand's positioning refers to how it is perceived in the marketplace relative to its competitors. Negative brand associations, damage to reputation, or a failure to live up to brand promises can significantly erode its positioning and make it harder to attract and retain customers.
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