CISM Information Security Risk Management Practice Question
An organization's risk management policy requires a quantitative risk assessment for all new projects. The project team estimates that a data breach could occur once every 5 years with an average loss of $2 million. What is the annualized loss expectancy (ALE)?
⚠ Common exam trap
Many exam-takers confuse the recurrence interval (every 5 years) with the ARO, mistakenly multiplying the loss by 5 instead of dividing, leading to the inflated $10,000,000 option.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
$400,000
The annualized loss expectancy (ALE) is calculated by multiplying the single loss expectancy (SLE) by the annualized rate of occurrence (ARO). Here, the ARO is 1/5 = 0.2 (one event every five years), and the SLE is $2,000,000. Thus, ALE = 0.2 × $2,000,000 = $400,000.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
$400,000
Why this is correct
Annualised loss expectancy multiplies single loss expectancy by annualised rate of occurrence. A $2 million loss every five years gives an exposure factor of 0.2 per year, yielding $400,000. This satisfies the policy's quantitative requirement by expressing expected annual loss in monetary terms, enabling direct comparison against control costs.
- ✗
$10,000,000
Why it's wrong here
Multiplying the $2 million single loss by the five-year interval inverts the annualised calculation; ALE requires the annualised rate of occurrence (0.2) multiplied by the single loss expectancy. The $10 million figure is the total expected loss across the whole five-year period, not per year, so it answers a different question than the one posed.
- ✗
$500,000
Why it's wrong here
ALE is calculated as single loss expectancy multiplied by annualised rate of occurrence, giving $2,000,000 × 0.2 = $400,000, not $500,000. The figure $500,000 tempts because it equals the $2 million loss divided by the four-year interval implied by "once every 5 years", but ARO is 1/5, not 1/4.
- ✗
$2,000,000
Why it's wrong here
This restates the single loss expectancy rather than the annualised loss expectancy, omitting the frequency component entirely. It is tempting because $2 million is the headline loss figure given, but ALE requires multiplying SLE by the annualised rate of occurrence, which here is 0.2, yielding $400,000.
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JA
Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
This CISM practice question is part of Courseiva's free ISACA certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the CISM exam.