CPM Risk Management and Mitigation Flashcards

What is the purpose of a Business Continuity Plan (BCP) in the context of procurement?

Answer: To ensure critical procurement activities can continue during and after a major disruption

A BCP outlines procedures and strategies to maintain or quickly resume essential procurement operations when faced with a disaster or significant disruption.

What does 'supplier financial health assessment' involve in risk management?

Answer: Analyzing a supplier's financial statements to evaluate their stability and viability

Assessing a supplier's financial health through analysis of credit ratings, balance sheets, and cash flow helps identify insolvency risk before it disrupts supply.

Which risk transfer mechanism protects a buyer from losses caused by a supplier's failure to perform?

Answer: Performance bond or surety bond

A performance bond is a guarantee from a third party (surety) that the supplier will fulfill their contractual obligations or the buyer will be compensated.

What is 'price risk' in purchasing management?

Answer: The risk that commodity or input prices will rise unexpectedly, increasing procurement costs

Price risk refers to the possibility that market prices for goods or materials will increase, causing actual procurement costs to exceed budgeted amounts.

What is a 'hedge' in the context of managing commodity price risk?

Answer: A financial strategy using futures or options contracts to lock in prices and offset potential cost increases

Hedging uses financial instruments like futures contracts to fix the purchase price of a commodity, protecting buyers from adverse price movements.

In supply risk management, what does 'single source dependency' mean?

Answer: Relying on only one supplier for a critical item, creating vulnerability if that supplier fails

Single source dependency means a buyer has only one qualified supplier for a critical item, leaving them exposed to complete supply disruption if that supplier has any issue.