CIPS L4M2 Practice Exams
Last updated on Oct 22,2026- Exam Code: L4M2
- Exam Name: Defining Business Needs
- Certification Provider: CIPS
- Latest update: Oct 22,2026
Which of the following is a risk to buying organization when using conformance specification?
- A . Buyer is responsible for product failure
- B . Buyer may face liquidity risks
- C . Buyer cannot control the inputs
- D . Time to produce specification is shortened
A
Explanation:
When using conformance specification, the buying organisation is responsible for the performance of the purchase. If the product fails due to poorly designed specification, the buyer is wholly responsible for it. It cannot blame the supplier for the failure because they still provided ‘fit for purpose’ product.
‘Time to produce specification is shortened’: Conformance specification requires details on dimen-sion, materials, design, etc. With such requirements, time to produce a complete conformance specification is often longer than producing performance specification.
‘Buyer cannot control the inputs’: Conformance specification is a list of inputs from buyer, so buyer has control over the inputs that will make the product. It also means that buyer is responsible for any product failure.
‘Buyer may face liquidity risks’: Liquidity means that how quick a business turns its assets into cash.
This is a financial term, it does not link directly with specification failure.
Reference: CIPS study guide page 118-119
LO 3, AC 3.1
A CPO is making a business case for acquiring a new computer system. He has set out objective, generated options, cost and benefit of each option and implementation plan.
Which of the following elements should be included in the business case?
- A . Risk assessment
- B . Operation management
- C . Invitation to tender
- D . Contract management
A
Explanation:
Before a project commences (either capital purchase or switching to a new supplier), a business case should be developed. The business case outlines the why, what, how, and who necessary to decide if it is worthwhile continuing a project.
Basically, the following criteria can be applied to the assessment of a business case:
A CPO is making a business case for acquiring a new computer system. He has set out objective, generated options, cost and benefit of each option and implementation plan.
Which of the following elements should be included in the business case?
- A . Risk assessment
- B . Operation management
- C . Invitation to tender
- D . Contract management
A
Explanation:
Before a project commences (either capital purchase or switching to a new supplier), a business case should be developed. The business case outlines the why, what, how, and who necessary to decide if it is worthwhile continuing a project.
Basically, the following criteria can be applied to the assessment of a business case:
Which of the following sources of information are considered as primary data? Select TWO that apply.
- A . The information about specific market sectors from trade associations
- B . Commercial publishers of market reports
- C . The collection of data from surveying customers
- D . RFI
- E . Reports in business magazines
C, D
Explanation:
The aim of this question is to check students’ understanding of different types of data. There are 2 types of data:
– Primary data is the collection of original or raw data which are generated from field research. In this case, only RFI and surveys from customers are considered as primary data.
– On the other hand, secondary data is public information that has been collected by others. It is typically free or inexpensive to obtain and can act as a strong foundation to any research project ― provided you know where to find it and how to judge its worth and relevance. Examples of secondary data are government statistics, industry associations, trade publications, published market reports, etc.
Reference: CIPS study guide page 22-24 LO 1, AC 1.2
Which of the following sources of information are considered as primary data? Select TWO that apply.
- A . The information about specific market sectors from trade associations
- B . Commercial publishers of market reports
- C . The collection of data from surveying customers
- D . RFI
- E . Reports in business magazines
C, D
Explanation:
The aim of this question is to check students’ understanding of different types of data. There are 2 types of data:
– Primary data is the collection of original or raw data which are generated from field research. In this case, only RFI and surveys from customers are considered as primary data.
– On the other hand, secondary data is public information that has been collected by others. It is typically free or inexpensive to obtain and can act as a strong foundation to any research project ― provided you know where to find it and how to judge its worth and relevance. Examples of secondary data are government statistics, industry associations, trade publications, published market reports, etc.
Reference: CIPS study guide page 22-24 LO 1, AC 1.2
A company is evaluating two investment projects: Project A and Project B. Project A has a high initial cost but generates substantial cash flows over time. Project B has a lower initial cost but generates modest cash flows consistently. The company’s cost model indicates a payback period of three years for Project A and a payback of four years for Project B.
Which of the following statements is correct regarding the cost models and cash flow profiling for these projects?
- A . Project A has a shorter payback period, making it a quicker return on investment compared to Project B
- B . Project A’s higher initial cost is a disadvantage, and its payback period should be extended for better profitability
- C . Project B’s lower initial cost allows for faster profit realisation, making it the better investment choice
- D . Project B’s modest and consistent cash flows make it a risky investment option due to a longer payback period
A
Explanation:
Project A’s shorter payback period means the initial investment is recovered more quickly, which is often preferred in cost models. The higher initial cost is offset by substantial cash flows, making it the more viable option based on ROI.
Reference: CIPS Level 4, Investment Appraisal Techniques.
A company is evaluating two investment projects: Project A and Project B. Project A has a high initial cost but generates substantial cash flows over time. Project B has a lower initial cost but generates modest cash flows consistently. The company’s cost model indicates a payback period of three years for Project A and a payback of four years for Project B.
Which of the following statements is correct regarding the cost models and cash flow profiling for these projects?
- A . Project A has a shorter payback period, making it a quicker return on investment compared to Project B
- B . Project A’s higher initial cost is a disadvantage, and its payback period should be extended for better profitability
- C . Project B’s lower initial cost allows for faster profit realisation, making it the better investment choice
- D . Project B’s modest and consistent cash flows make it a risky investment option due to a longer payback period
A
Explanation:
Project A’s shorter payback period means the initial investment is recovered more quickly, which is often preferred in cost models. The higher initial cost is offset by substantial cash flows, making it the more viable option based on ROI.
Reference: CIPS Level 4, Investment Appraisal Techniques.
Raw materials used in the production of a saleable product are classed as …
- A . Direct costs
- B . Indirect costs
- C . Overheads
- D . Fixed costs
Raw materials used in the production of a saleable product are classed as …
- A . Direct costs
- B . Indirect costs
- C . Overheads
- D . Fixed costs
A procurement manager consolidates the company expense on printing and office supplies into broader range of spend category. Other senior managers are concerned that it may increase company’s spend.
Is that concern justified?
- A . No, because the broader range of spend category can increase the value of the contract and the buyer may get volume discount
- B . Yes, because the consolidation may create a large contract that costs more than placing each purchase order
- C . No, because the consolidation will help the supplier to shorten deliver time.
- D . Yes, because the suppliers can’t provide a broader range of products and they will fail to deliver
A
Explanation:
Printing and office supplies are often considered as low risk, low value items. Consolidation low value, low risk items into a broader range will dramatically increases the value of the contract and leverage of buying organisation in the negotiation.
Reference: CIPS study guide page 8-9
LO 1, AC 1.1