CIPS L4M2 Practice Exams
Last updated on Oct 23,2026- Exam Code: L4M2
- Exam Name: Defining Business Needs
- Certification Provider: CIPS
- Latest update: Oct 23,2026
Question #161
When should procurement professional tolerate a risk?
- A . When the risk may disrupt the production
- B . When the risk imposes an existential threat
- C . When the risk causes some trivial annoyance
- D . When the risk breaks the relationship with the strategic supplier
Correct Answer: C
C
Explanation:
Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. Our preferred way to determine your risk control strategy is to use the four T’s Process:
Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business (such as some trivial annoyance). Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.
Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred.
Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the approach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.
If an item presents a risk and can be changed or removed without it materially affecting the business, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.
Reference: CIPS study guide page 144-145
LO 3, AC 3.3
C
Explanation:
Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. Our preferred way to determine your risk control strategy is to use the four T’s Process:
Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business (such as some trivial annoyance). Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.
Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred.
Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the approach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.
If an item presents a risk and can be changed or removed without it materially affecting the business, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.
Reference: CIPS study guide page 144-145
LO 3, AC 3.3
Question #161
When should procurement professional tolerate a risk?
- A . When the risk may disrupt the production
- B . When the risk imposes an existential threat
- C . When the risk causes some trivial annoyance
- D . When the risk breaks the relationship with the strategic supplier
Correct Answer: C
C
Explanation:
Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. Our preferred way to determine your risk control strategy is to use the four T’s Process:
Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business (such as some trivial annoyance). Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.
Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred.
Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the approach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.
If an item presents a risk and can be changed or removed without it materially affecting the business, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.
Reference: CIPS study guide page 144-145
LO 3, AC 3.3
C
Explanation:
Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. Our preferred way to determine your risk control strategy is to use the four T’s Process:
Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business (such as some trivial annoyance). Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.
Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred.
Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the approach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.
If an item presents a risk and can be changed or removed without it materially affecting the business, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.
Reference: CIPS study guide page 144-145
LO 3, AC 3.3
Question #163
Which of the following would be considered to be direct costs? Select TWO that apply:
- A . Production materials
- B . Head office salaries
- C . Company car depreciation
- D . Manufacturing staff wages
- E . Buildings insurance
Correct Answer: A, D
A, D
Explanation:
A (Production materials): These are directly tied to the production of goods and are variable costs. D (Manufacturing staff wages): Labour directly involved in the production process is a direct cost. Indirect costs like salaries, depreciation, and insurance are related to overheads and not directly tied to production.
Reference: CIPS Level 4, Cost Structures.
A, D
Explanation:
A (Production materials): These are directly tied to the production of goods and are variable costs. D (Manufacturing staff wages): Labour directly involved in the production process is a direct cost. Indirect costs like salaries, depreciation, and insurance are related to overheads and not directly tied to production.
Reference: CIPS Level 4, Cost Structures.
Question #163
Which of the following would be considered to be direct costs? Select TWO that apply:
- A . Production materials
- B . Head office salaries
- C . Company car depreciation
- D . Manufacturing staff wages
- E . Buildings insurance
Correct Answer: A, D
A, D
Explanation:
A (Production materials): These are directly tied to the production of goods and are variable costs. D (Manufacturing staff wages): Labour directly involved in the production process is a direct cost. Indirect costs like salaries, depreciation, and insurance are related to overheads and not directly tied to production.
Reference: CIPS Level 4, Cost Structures.
A, D
Explanation:
A (Production materials): These are directly tied to the production of goods and are variable costs. D (Manufacturing staff wages): Labour directly involved in the production process is a direct cost. Indirect costs like salaries, depreciation, and insurance are related to overheads and not directly tied to production.
Reference: CIPS Level 4, Cost Structures.
Question #165
Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:
- A . To determine the value of each component used
- B . To decide whether there will be sufficient surplus funds to reinvest in the business
- C . To shape and manage supply market
- D . To provide an outline business case for the specification
- E . To find cost reduction opportunities by optimising the components used
Correct Answer: A
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
Question #165
Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:
- A . To determine the value of each component used
- B . To decide whether there will be sufficient surplus funds to reinvest in the business
- C . To shape and manage supply market
- D . To provide an outline business case for the specification
- E . To find cost reduction opportunities by optimising the components used
Correct Answer: A
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
Question #165
Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:
- A . To determine the value of each component used
- B . To decide whether there will be sufficient surplus funds to reinvest in the business
- C . To shape and manage supply market
- D . To provide an outline business case for the specification
- E . To find cost reduction opportunities by optimising the components used
Correct Answer: A
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
Question #165
Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:
- A . To determine the value of each component used
- B . To decide whether there will be sufficient surplus funds to reinvest in the business
- C . To shape and manage supply market
- D . To provide an outline business case for the specification
- E . To find cost reduction opportunities by optimising the components used
Correct Answer: A
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
Question #165
Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:
- A . To determine the value of each component used
- B . To decide whether there will be sufficient surplus funds to reinvest in the business
- C . To shape and manage supply market
- D . To provide an outline business case for the specification
- E . To find cost reduction opportunities by optimising the components used
Correct Answer: A
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs.
This can be accomplished through a variety of activities, including the following:
– Designing products to use lower-tolerance parts that are less expensive
– Switching to lower-cost components
– Standardizing parts across product platforms in order to achieve volume discounts
– Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
– Introducing automation to strip labor costs out of the production process
– Altering product packaging to lower its cost while still protecting the product
The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-
pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
Question #170
Which of the following specific markets is most likely to have the lowest entry barrier?
- A . Retail
- B . Manufacturing
- C . Financial
- D . Agriculture
- E . Services
Correct Answer: E
E
Explanation:
Start-up costs are generally low in service industries, and the main requirement is a level of knowledge and skill in that particular service.
LO 2, AC 2.1
E
Explanation:
Start-up costs are generally low in service industries, and the main requirement is a level of knowledge and skill in that particular service.
LO 2, AC 2.1