Qs 5 2 Flashcards
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
Answer:
C
Explanation:
Actions to mitigate one risk, may create another risk. This is a direct quote from p. 132
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
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
ISO 20400 represents what area of business?
Options:
A. Quality Management
B. Supply Chain Security
C. Risk Management
D. Sustainable Procurement
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.
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
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
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
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.
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
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
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
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.
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
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 …
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
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
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
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
What is ISO28000?
Options:
A. Risk Management
B. Supply Chain Security
C. Quality Management
D. Sustainable Procurement
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
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
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.
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
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
The CBCI and DBCI are professional qualifications in which area?
A. supply chain management
B. ethical business practices
C. environmental improvements
D. business continuity
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!
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
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.
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
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.
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
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
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
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
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
Answer : C
Act is the final stage. See p.25 for a diagram of the cycle.
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
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.
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
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).
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
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
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
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
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
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.
