CIPS Defining Business Needs L4M2 Exam Dumps: Updated Questions & Answers (October 2025)

Detailed Explanation:

1 (Reduces design need): Performance specifications focus on outcomes rather than detailed designs, saving buyer resources.

2 (Wider supply base): Allowing suppliers to propose their own solutions can attract a broader range of suppliers.Options 3 and 4 align with conformance specifications, not performance-based ones. Reference: CIPS Level 4, Specification Writing.

Explanation

Despite of its importance, cost analysis is often a daunting task for procurement professionals. In order to analyse supplier's costs effectively, procurement may need the input from other depart-ments. Normally, technical (or engineering) department may help them to identify the direct costs of the product/service (how much material is required to make the product, or how many people are needed to perform the job, etc), while finance (or accounting) department may have ideas on the overheads of the supplier.

In this scenario, engineering department may provide insights on the components needed and the tasks to perform. Similarly, finance may know how much supplier pays for the overheads.

On the other hand, while commercial agency and suppliers are external stakeholders, Sales and marketing is unlikely to provide valuable information in this case.

Explanation

Value Engineering (VE) is concerned with new products. It is applied during product development. The focus is on reducing costs, improving function or both, by way of teamwork-based product evaluation and analysis. This takes place before any capital is invested in tooling, plant or equipment.

This is very significant, because according to many reports, up to 80% of a product’s costs (throughout the rest of its life-cycle), are locked in at the design development stage. This is under-standable when you consider the design of any product determines many factors, such as tooling, plant and equipment, labour and skills, training costs, materials, shipping, installation, maintenance, as well as decommissioning and recycle costs.

Explanation

In the scenario, the products have low value and high risk of supply. This group is known as bottleneck or critical in Kraljic's portfolio matrix. The objective for such items would be securing the supply. The company can achieve this goal by 'making' the products themselves, or finding an alternative option.

Diagram Description automatically generated

Explanation

In this question, you have to calculate price variance and quantity variance.

Last month, 1 tonne of steel costed $216. This month, the price decreases to $181.1. Price variance = (P1 - P2)*Q2 = ($216-$181.1)*11 = $383.9

Quantity variance = (Q1-Q2)*P1 = -$216

Price variance is greater than quantity variance, therefore, price variance is the main cost driver.

LO 1, AC 1.4

Explanation

"A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus." (Reference: Porter, Michael E., "Competitive Advantage". 1985, Ch. 1, pp 11-15. The Free Press. New York.)

Creating stand-out products and brands is considered as Differentiation. An organisation that is not clear about which of these three strategies to use is described as 'stuck in the middle'

LO 2, AC 2.1

Explanation

ISO 9001:2015 specifies requirements for a quality management system.

ISO 14001:2015 specifies the requirements for an environmental management system that an or-ganization can use to enhance its environmental performance. ISO 14001:2015 is intended for use by an organization seeking to manage its environmental responsibilities in a systematic manner that contributes to the environmental pillar of sustainability.

ISO 22000:2018 specifies food safety management systems — Requirements for any organization in the food chain

ISO 27001 provides requirements for an information security management system.

LO 3, AC 3.1

Explanation

The writing of a complex specification should be treated as a project because it requires the brain power from different stakeholders. Many tools and processes of project management can be applied to complex specification development. Before engaging with the stakeholders and implementing the project, the project initial document should developed.

A Project Initiation Document (PID) is one of the most important components of project manage-ment, which forms the foundation for a company project. It is a reference point during the entire project, for the client as well as for the project team.

A PID bundles documentation into a logical reference work that collects all important information needed to start and run a project from a good foundation. After that, Project Initiation Document must be transferred to all stakeholders, including business sponsors.

This forms the basis for the project management. The documentation from which the PID is com-posed include the business case in which the project’s justification can be found, the communica-tion plan and the project plan.

The PID is composed out of collected information and includes, among others, the following com-ponents:

- Project goal(s); what do you want to achieve with the project?

- Project size; how large is the project, how long does it take and how many people are involved?

- Project organisation; who are involved in the project, what are their tasks, responsibilities and authority?

- Limits and risks; what can cause a project to stagnate and are there risks related to the project?

- Stakeholders; who has a stake in the success of the project?

- Project checks and frame reporting; by carefully taking into account evaluation moments, it is clear to everyone what sample tests can be carried out during the process.

In addition, it is important that the Project Initiation Document also contains the following infor-mation:

- The background and occasion of the project, which together provide information about the con-text.

- The project organisational structure, which describes who has which management responsibility in the project.

- The project quality plan, describing who controls the quality of the products to be delivered and how it will take place.

- The total project planning, including the duration of all activities.

- The exception process, which describes how exceptions are dealt with and the steps of the escalation procedure.

- The risk log, including the measures that will be taken when there are unforeseen risks.

- The documentation structure of the project, in which the encoding and storage of all documents and products to be provided by the project has been recorded in advance.

Explanation

In this question, you should understand the concept of cash flow and formula of cash flow. Cash flow calculates the physical money moving in and out a company's bank balance. The cash flow from sale activity is:

cash flow from sale = account receivable at beginning of the year + revenue - account receivable at the end of the year = $450,000 + $5,000,000 - $525,000 = $4,925,000

75% of direct costs was bought by credit, therefore, the company spent 25% on direct cost: -$2,500,000*25/100 = -$625,000

25% of indirect costs was bought on credit. Cash flow out on indirect costs is: -$3,000,000*75/100 = -$2,250,000

Company spent $1,500,000 on new assets funded by a loan of $1,000,000. Cash flow out from this activity is -$500,000

Company received $150,000 from selling old assets

Dividends have not been paid for another 2 months, thus, they are not accounted as cash flow out.

The bank balance at the end of the year is: $175,000 + $4,925,000 - $625,000 - $2,250,000 - $500,000 + $150,000 = $1,875,000

LO 1, AC 1.4