Question 1

Which of the following is a component of the Sarbanes-Oxley Regulations?

Accepted Answer

A

Explanation: The Sarbanes-Oxley Act (SOX), specifically Section 404, mandates that the management of public companies establish and maintain an adequate internal control structure for financial reporting. A fundamental principle of effective internal controls is the separation of duties (also known as segregation of duties). This principle is a key control activity designed to prevent fraud and error by ensuring that no single individual has control over all aspects of a transaction. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework, which is the most widely used framework for SOX compliance, explicitly identifies separation of duties as a critical control activity.

Question 2

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?

Accepted Answer

D

Explanation: The Poisson distribution is the most appropriate methodology. It is a discrete probability distribution used to model the number of times an event occurs within a specified interval of time or space. In this scenario, the 'event' is a supplier's failure to deliver, and the 'interval' is a two-day period. The Poisson distribution is ideal for calculating the probability of such occurrences, assuming they happen independently and at a constant average rate. It is a standard tool in operations and supply chain management for modeling events like equipment failures, customer arrivals, or, as in this case, delivery failures.

Question 3

Which of the following will you put into box 6?

Accepted Answer

D

Explanation: The options provided relate to different strategies for managing risk. In a typical risk management matrix, responses are categorized as Avoid, Mitigate (Reduce), Transfer, or Accept. "Insurance" is the most direct and classic example of a Risk Transfer strategy. This approach is used for risks with a low probability but a high potential impact. An organization pays a premium to a third party (an insurer) to shift the financial burden of a potential loss, thereby transferring the risk. While other options can involve risk transfer, insurance is the purest form of this strategy.

Question 4

Which of the following FIDIC Contracts would be suitable for a contract for offshore wind projects?

Accepted Answer

D

Explanation: The FIDIC Yellow Book, formally the "Conditions of Contract for Plant and Design-Build," is the most suitable contract for an offshore wind project. This type of project is a complex engineering undertaking where the contractor is responsible for both designing the facility (e.g., turbine foundations, array layout, electrical systems) and executing the works, which includes procuring and installing major plant and equipment (e.g., wind turbines, substations). The Yellow Book is specifically structured for such design-build arrangements, where the contractor delivers a turnkey project based on the employer's requirements.

Question 5

ISO 31000 is built on 11 guiding principles. Identify THREE of these.

Accepted Answer

A, B, C

Explanation: The question refers to the 11 guiding principles of the ISO 31000:2009 standard. According to this standard, effective risk management should: 1. Create and protect value (A). 2. Explicitly address uncertainty (C). 3. Take human and cultural factors into account (B). These three options are direct restatements of the core principles outlined in the standard. The goal of these principles is to ensure that risk management is not a standalone activity but an integrated, dynamic, and tailored part of an organisation's governance, strategy, and culture, ultimately contributing to the achievement of its objectives.

Question 6

The USA Foreign Corrupt Practices Act (FCPA) is further reaching than the UK's Bribery Act 2010. Is this statement true?

Accepted Answer

C

Explanation: The statement that the US FCPA is more far-reaching than the UK Bribery Act 2010 is incorrect. The UK Bribery Act is widely considered one of the strictest and most extensive anti-corruption laws globally. A key reason for this is the introduction of the corporate offence of 'failure of a commercial organisation to prevent bribery' under Section 7. This creates strict liability for bribery committed by an 'associated person' (including third-party agents, subsidiaries, and contractors) acting on the organisation's behalf, anywhere in the world. While the FCPA also has provisions for third-party liability, the UK Act's 'failure to prevent' offence establishes a broader and more stringent basis for corporate accountability.

Question 7

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?

Accepted Answer

A

Explanation: Appraisal costs are incurred to determine the degree of conformance to quality requirements. They involve measuring, evaluating, or auditing products to assure they meet quality standards before reaching the customer. Quality control inspections are a primary example of an appraisal activity, as their purpose is to detect non-conforming products, such as those with dangerous small parts, before they are shipped. This directly addresses the company's need to mitigate the risk of poor quality by identifying defects during or after the production process but before market entry. The other options represent prevention costs, which are aimed at stopping defects from occurring in the first place.

Question 8

Which of the following models would be used to explore internal and external risks to a business?

Accepted Answer

C

Explanation: SWOT analysis is a strategic planning framework used to evaluate an organisation's competitive position. It stands for Strengths, Weaknesses, Opportunities, and Threats. The framework is explicitly divided into two dimensions: internal and external. Strengths and Weaknesses are internal factors that originate within the organisation itself. Opportunities and Threats are external factors arising from the macro-environment. By identifying internal Weaknesses and external Threats, this model provides a comprehensive structure for exploring both internal and external risks to a business.

Question 9

What is the final stage of Deming's Plan - Do - Check cycle which is encouraged by ISO9001?

Accepted Answer

C

Explanation: The Deming Cycle, also known as the Plan-Do-Check-Act (PDCA) cycle, is a four-stage iterative model for continuous improvement. The final stage is 'Act'. In this stage, actions are taken based on the results of the 'Check' stage to address differences between actual and planned outcomes. If the change was successful, it is standardized and implemented. If not, the cycle begins again with new planning. The ISO 9001:2015 standard for quality management systems is explicitly based on the PDCA cycle, with Clause 10, 'Improvement', directly corresponding to the 'Act' stage, which focuses on implementing actions to achieve improvement.

Question 10

Which of the following will you put into box 5?

Accepted Answer

D

Explanation: Financial-exposure risk arising from inconsistent or extended supplier payment conditions is controlled by harmonising and enforcing common payment terms across the supply base. CIPS identifies “standardising payment terms” as a primary risk-mitigation action for cash-flow and liquidity threats because it increases cost predictability, simplifies administration and improves working-capital planning (CIPS L5M2 Study Guide, ch. 4, pp. 64-65). Therefore box 5, which asks for the risk-control measure, should contain “Standardise Payment Terms”.

Question 11

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?

Accepted Answer

C

Explanation: The principle of contribution applies when an insured party has multiple insurance policies covering the same risk. It dictates that the insured can only claim for the actual value of their loss and cannot profit by receiving full payment from each insurer. The insurers will share the cost of the claim, usually in proportion to the sum insured under each policy. This upholds the fundamental principle of indemnity, which is to restore the insured to the financial position they were in immediately before the loss, not to provide a windfall.

Question 12

Which of the following statements are true about risk management? Select TWO.

Accepted Answer

B, D

Explanation: Risk management is fundamentally a continuous and iterative process, not a static, one-time activity. The internal and external environments in which an organisation operates are constantly changing, necessitating ongoing identification, analysis, and treatment of risks. Within the context of procurement, effective risk management is critical for ensuring operational continuity. By proactively addressing potential disruptions in the supply chain—such as supplier failure, logistical issues, or geopolitical instability—companies can safeguard the flow of goods and services, thereby ensuring the smooth and successful running of their purchase and supply operations.

Question 13

Which of the following will you put into box 3?

Accepted Answer

D

Explanation: The risk matrix quadrant in Box 3 represents risks with both a high likelihood of occurring and a high impact if they do. According to established risk management principles, these are the most critical risks and require the most decisive action. The appropriate response is to Terminate (or Avoid) the risk, which involves ceasing the activities that give rise to the risk. This is because the potential for severe, frequent damage makes the risk unacceptable, and mitigation or transfer may not be sufficient to reduce it to an acceptable level.

Question 14

Which of the following will you put into box 5?

Accepted Answer

C

Explanation: The diagram illustrates key tools and techniques for managing risks inherent in international sourcing. The existing boxes list specific contractual and financial instruments: Incoterms (manage delivery/cost/risk transfer), Insurance (manage transit loss/damage), Hedging (manage currency risk), and Letters of Credit (manage payment/performance risk). A Force Majeure clause is a critical contractual provision that excuses a party from liability if an unforeseen and uncontrollable event (e.g., natural disaster, war, pandemic) prevents them from fulfilling their obligations. This directly addresses a major category of risk in international trade and fits logically with the other specific risk mitigation tools listed.

Question 15

Which of the following insurances would provide cover in the eventuality that your supplier's place of business flooded and this affected your deliveries?

Accepted Answer

B

Explanation: Contingent Business Interruption Insurance (CBII) is specifically designed to protect a business from financial losses resulting from a disruption at the premises of a key supplier or customer. In this scenario, the insured's business is not directly damaged, but its operations (deliveries) are affected because its supplier's place of business has flooded. This is a contingent, or dependent, event, which is the precise risk that CBII is intended to cover. It indemnifies the policyholder for lost profits and extra expenses caused by the interruption at the third-party location.

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