Making Risk Treatment Decisions Based on Cost-Benefit Analysis
During a risk assessment, an organization identifies that a legacy system processes credit card data and has a high likelihood of being exploited. The cost to remediate the vulnerability is $500,000, while the potential loss from a breach is $2 million with a 30% annual probability. What is the most appropriate risk treatment decision based on this information?
Quick Answer
The answer is risk mitigation by implementing controls to fix the vulnerability. This is correct because the annual loss expectancy (ALE) of $600,000—calculated as the $2 million potential loss multiplied by the 30% annual probability—exceeds the $500,000 remediation cost, making the cost-benefit analysis for risk treatment decision clearly favor mitigation over other options. On the Certified Information Security Manager CISM exam, this scenario tests your ability to apply quantitative risk analysis to compare the cost of a control against the expected loss, a core concept in the Risk Management domain. A common trap is choosing risk acceptance when the math shows mitigation is cheaper, or mistakenly selecting risk transfer without considering that insurance premiums often exceed the ALE. Memory tip: if the ALE is greater than the control cost, mitigate; if less, accept or transfer.
⚠ Common exam trap
The trap here is that candidates may incorrectly calculate ALE as $2 million × 0.3 = $600,000 but then compare it to the potential loss ($2 million) rather than the remediation cost ($500,000), leading them to choose risk transfer or acceptance instead of the economically optimal mitigation.
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
✓
Risk mitigation by implementing controls to fix the vulnerability
The annualized loss expectancy (ALE) is $600,000 (30% × $2,000,000), which exceeds the $500,000 remediation cost, making mitigation economically justified. Implementing controls to fix the vulnerability directly reduces the high likelihood of exploitation on the legacy system processing credit card data, aligning with PCI DSS requirements for protecting cardholder data.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Risk mitigation by implementing controls to fix the vulnerability
Why this is correct
Remediation cost less than ALE.
- ✗
Risk transfer by purchasing cyber insurance
Why it's wrong here
Insurance premiums may be high and not cost-effective.
- ✗
Risk acceptance because the probability is low
Why it's wrong here
Probability is 30%, not low, and ALE exceeds remediation cost.
- ✗
Risk avoidance by decommissioning the legacy system
Why it's wrong here
Overly drastic when mitigation is possible.
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Related to this question
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Same concept, more angles
1 more way this is tested on CISM
These questions test the same concept from different angles. Work through them to make sure you can recognise it however the exam phrases it.
Variation 1. During a risk assessment, an organization identifies that its legacy payment system has a high likelihood of exploitation due to unpatched vulnerabilities. The system is critical for daily operations. Which risk treatment option should the organization PRIMARILY consider?
medium- ✓ A.Implement compensating controls to reduce the risk
- B.Accept the risk as a cost of doing business
- C.Avoid the risk by decommissioning the system
- D.Purchase cyber insurance to transfer the risk
Why A: Implementing compensating controls, such as network segmentation, application-layer firewalls, or intrusion detection systems (IDS), directly reduces the residual risk of exploiting unpatched vulnerabilities in the legacy payment system without disrupting its critical daily operations. This aligns with the CISM principle that when a risk cannot be remediated (e.g., due to system criticality or vendor end-of-life), compensating controls are the primary treatment to bring risk within the organization's appetite.
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.