CIPS L4M2 TEST QUESTIONS AND VERIFIED
ANSWERS
Question 1
Business Needs
Correct Answer
The mission of the organisation determines its requirements and therefore what
procurement needs to source.
Question 2
Example of Strategic item (Kraljic Matrix)
Correct Answer
Capital assets such as premises
Question 3
Product standardisation
Correct Answer
The org produces no variations and if there are variants then the production line
has to stop when sufficient numbers of one variant have been produced to meet
customer needs.
Question 4
Budgets
Correct Answer
Budgets plan quantified in monetary terms and are important for time phased
income and expenditure management, to understand incoming and outgoing cash
flow over a specified period.
Page 1 of 41
,Question 5
Zero based budget
Correct Answer
Where managers must bid a budget from 0 and assume they have no resources.
Question 6
Alpha testing
Correct Answer
Takes place during the development phase and generally only involves contractor
employees.
Question 7
Three factors that determine the importance of a risk
Correct Answer
Impact if it was to occur, the likelihood of the risk being detected before causing
damage, and the likelihood of eliminating the risk.
Question 8
Business case
Correct Answer
Is the justification for undertaking an action and its purpose is to seek approval and
finance for the recommended action.
Question 9
A concept to implement standardisation in a service company
Correct Answer
The lean concept
Page 2 of 41
,Question 10
Secondary functions
Correct Answer
The things the product can do in addition to its primary functions.
Question 11
Primary market data
Correct Answer
Is collected for a specific purpose, direct from relevant sources e.g. customers. This
data is tailor made and is considered direct and a reliable source. However it is
timely, costly and possibly considered biased.
Question 12
Performance specification
Correct Answer
Tells the suppliers what you want a product/service to do and achieve. This type of
specification concentrated on outputs (the end results).
Question 13
Learning curve
Correct Answer
A graphical representation of how unit costs reduce the greater the number of
those items produced.
Question 14
Cash flow projection
Correct Answer
Designed to project the future cash position of the firm or project.
Page 3 of 41
, Question 15
Services
Correct Answer
Market utilised by procurement and supply
Question 16
Activity based costing method
Correct Answer
This is based on the identification of cost drivers and cost pools. There is a
difference between purchase price and total cost of ownership. Best value = the
lowest whole life cost.
Question 17
Financial budget
Correct Answer
Is a plan for a defined period, usually 12 months, showing revenues or costs, or
both.
Question 18
Mission statement
Correct Answer
A written statement of the purpose of an org which does not change over time.
Question 19
Innovators
Correct Answer
People who like to be the first to try new ideas, goods and services.
Page 4 of 41
ANSWERS
Question 1
Business Needs
Correct Answer
The mission of the organisation determines its requirements and therefore what
procurement needs to source.
Question 2
Example of Strategic item (Kraljic Matrix)
Correct Answer
Capital assets such as premises
Question 3
Product standardisation
Correct Answer
The org produces no variations and if there are variants then the production line
has to stop when sufficient numbers of one variant have been produced to meet
customer needs.
Question 4
Budgets
Correct Answer
Budgets plan quantified in monetary terms and are important for time phased
income and expenditure management, to understand incoming and outgoing cash
flow over a specified period.
Page 1 of 41
,Question 5
Zero based budget
Correct Answer
Where managers must bid a budget from 0 and assume they have no resources.
Question 6
Alpha testing
Correct Answer
Takes place during the development phase and generally only involves contractor
employees.
Question 7
Three factors that determine the importance of a risk
Correct Answer
Impact if it was to occur, the likelihood of the risk being detected before causing
damage, and the likelihood of eliminating the risk.
Question 8
Business case
Correct Answer
Is the justification for undertaking an action and its purpose is to seek approval and
finance for the recommended action.
Question 9
A concept to implement standardisation in a service company
Correct Answer
The lean concept
Page 2 of 41
,Question 10
Secondary functions
Correct Answer
The things the product can do in addition to its primary functions.
Question 11
Primary market data
Correct Answer
Is collected for a specific purpose, direct from relevant sources e.g. customers. This
data is tailor made and is considered direct and a reliable source. However it is
timely, costly and possibly considered biased.
Question 12
Performance specification
Correct Answer
Tells the suppliers what you want a product/service to do and achieve. This type of
specification concentrated on outputs (the end results).
Question 13
Learning curve
Correct Answer
A graphical representation of how unit costs reduce the greater the number of
those items produced.
Question 14
Cash flow projection
Correct Answer
Designed to project the future cash position of the firm or project.
Page 3 of 41
, Question 15
Services
Correct Answer
Market utilised by procurement and supply
Question 16
Activity based costing method
Correct Answer
This is based on the identification of cost drivers and cost pools. There is a
difference between purchase price and total cost of ownership. Best value = the
lowest whole life cost.
Question 17
Financial budget
Correct Answer
Is a plan for a defined period, usually 12 months, showing revenues or costs, or
both.
Question 18
Mission statement
Correct Answer
A written statement of the purpose of an org which does not change over time.
Question 19
Innovators
Correct Answer
People who like to be the first to try new ideas, goods and services.
Page 4 of 41
