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CIPS L5M2 Exam (page: 5)
CIPS Managing Supply Chain Risk
Updated on: 31-Mar-2026

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L5M2 PDF 120 Questions

Which of the following statements about FIDIC Contracts are true? Select TWO:

  1. They are used in the construction industry
  2. They are more collaborative than NEC contracts
  3. Each party manages their own risks separately
  4. Early warning notices are given when risks arise
  5. Change control is called a 'Compensation Event'

Answer(s): A,C

Explanation:

1 and 3 are correct answers. Options 2,4, and 5 are true for NEC contracts - NEC is more collaborative than FIDIC, early warning notices are given and change controls are called 'Compensation Events'. See p.74 for more information on FIDIC and NEC Contracts. This does come up in the exam



Which of the following risks is associated with sourcing from low-cost countries? Select TWO:

  1. operational risks
  2. reputational risks
  3. geopolitical risks
  4. financial risks

Answer(s): 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 ...



A large multi-national corporation has just been awarded a credit rating of C by the three main credit rating agencies.
What does this score signify?

  1. low risk
  2. average risk
  3. substantial risk
  4. in default

Answer(s): C

Explanation:

a C grade = substantial risk. This is based on the grading system of AAA-D and is explained on p. 80.
basically anything that isn't an A is bad.



A supplier of non-critical items has a low credit score, Which of the following actions should be taken? Select TWO options.

  1. replace the supplier as quickly as possible with a more financially stable supplier
  2. conduct a benchmarking exercise
  3. create a risk assessment and mitigation plan
  4. inform the CEO of the company

Answer(s): B,C

Explanation:

The correct answers are conduct benchmarking and create a risk assessment. This supplier provides low value and low risk products - therefore the fact they have a bad credit rating isn't too much of a risk to your company. It's worth doing a benchmarking exercise to compare their position to others in the market to see if there are any industry-wide trends, and to create a risk assessment and mitigation plan. This could involve working with the supplier to help them improve their credit score, for example by using more favourable payment terms so they have a better cash flow. There's no need to replace them immediately, and there's no need to tell the CEO- they probably have more important things to think about than a singular supplier of non-critical items See p.81



Envy Manufacturing has several factories located in countries with poor reputations for human rights. It is concerned about potential risks of child labour being used within the supply chain. Envy Manufacturing has therefore decided to enlist the support of a third party auditing company to audit its factories. How should these audits be conducted? Select TWO

  1. organised well in advance to allow the factory managers to prepare for the audit
  2. conduct on the spot visits with no warning
  3. conduct group interviews with workers to ensure that all voices are heard
  4. conduct private meetings with a selection of workers

Answer(s): B,D

Explanation:

2 and 4 are correct. Audits should be unscheduled so that any issues can't be covered up in advance. Interviews with workers should also be conducted in private as this will allow them to speak their mind with confidence.
Where interviews are conducted as a group there may be peer-pressure to say the correct thing. especially if there are managers around. see p.88 for information on Audits



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