CRISC Risk Response and Reporting Practice Question
A company is evaluating the cost-benefit of a new control that reduces the annualized loss expectancy (ALE) from $500,000 to $100,000. The control has an annual cost of $150,000. What is the net benefit of implementing this control?
⚠ Common exam trap
The trap here is that candidates often forget to subtract the annual control cost from the ALE reduction, mistakenly selecting the gross reduction ($400,000) as the net benefit, or they incorrectly subtract the residual ALE instead of the control cost.
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
✓
$250,000
The net benefit of implementing a control is calculated as the reduction in Annualized Loss Expectancy (ALE) minus the annual cost of the control. The ALE reduction is $500,000 - $100,000 = $400,000. Subtracting the annual control cost of $150,000 yields a net benefit of $250,000, making option B correct.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
$350,000
Why it's wrong here
$350,000 subtracts the $150,000 control cost from the original $500,000 ALE, treating the pre-control figure as the benefit. That approach fits calculating total cost of the control against existing exposure, not the net benefit derived from the $400,000 reduction.
- ✓
$250,000
Why this is correct
The control lowers annualised loss expectancy by $400,000 ($500,000 − $100,000), then subtracts its $150,000 annual cost, giving a net benefit of $250,000. This satisfies the stem's cost-benefit constraint by quantifying residual risk reduction against control expenditure, confirming the investment yields positive value.
- ✗
$400,000
Why it's wrong here
$400,000 is the loss reduction alone, omitting the $150,000 annual control cost. That figure answers a question asking for the risk reduction or ALE improvement delivered by the control, not the net benefit after subtracting what the control costs to run.
- ✗
$50,000
Why it's wrong here
$50,000 reflects subtracting only the control cost from the reduced ALE of $100,000, ignoring the $400,000 loss reduction. That arithmetic suits a question asking for residual risk after controls, not net benefit, which requires the reduction minus the annual cost.
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