Quick Answer
The answer is $200,000, which represents the residual risk after control implementation. This is correct because residual risk is defined as the remaining Annual Loss Expectancy (ALE) after controls are applied, and the problem explicitly states that the ALE is reduced to $200,000 following the encryption control. The $150,000 annual control cost is a separate figure used for cost-benefit analysis, not for calculating residual risk, which focuses solely on the loss exposure that persists despite safeguards. On the CRISC exam, this question tests your understanding that residual risk is the leftover ALE, not the ALE minus control costs—a common trap where candidates mistakenly subtract the control expense. Remember the key distinction: control costs inform ROI calculations, while residual risk is simply the post-control ALE. A helpful memory tip is “Residual = Remaining ALE,” so when you see a post-control ALE figure, that is your residual risk answer.
This CRISC practice question tests your understanding of it risk assessment. Read the scenario carefully and evaluate each option against the stated constraints before committing to an answer. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
A financial institution is evaluating the risk of a new mobile payment application. The risk team calculates the Annual Loss Expectancy (ALE) as $500,000 based on a single loss expectancy (SLE) of $100,000 and an annual rate of occurrence (ARO) of 5. After implementing a new encryption control at a cost of $150,000 per year, the ALE is reduced to $200,000. What is the residual risk in terms of ALE after one year of control operation?
$200,000
This is the post-control ALE, representing residual risk.
$500,000
Why wrong: This is the inherent risk ALE before control.
$350,000
Why wrong: This incorrectly adds control cost.
$300,000
Why wrong: This incorrectly subtracts control cost from original ALE.
Answer choices
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
$200,000
The residual risk is the remaining Annual Loss Expectancy (ALE) after controls are applied. Since the ALE after implementing the encryption control is explicitly stated as $200,000, that is the residual risk after one year of control operation. The control cost of $150,000 is a separate cost-of-control figure and does not reduce the ALE further; it is used for cost-benefit analysis, not for calculating residual risk.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
For each option: why learners choose it and why it is or isn't the right answer here.
$200,000
Why this is correct
This is the post-control ALE, representing residual risk.
Related concept
Read the scenario before looking for a memorised answer.
$500,000
Why it's wrong here
This is the inherent risk ALE before control.
$350,000
Why it's wrong here
This incorrectly adds control cost.
$300,000
Why it's wrong here
This incorrectly subtracts control cost from original ALE.
Common exam traps
The trap here is that candidates mistakenly subtract the control cost from the original or reduced ALE, thinking residual risk equals ALE minus control expenditure, when in fact residual risk is simply the post-control ALE as stated.
Detailed technical explanation
Residual risk is formally defined as the risk remaining after risk treatment (e.g., controls) and is quantified by the post-control ALE. In quantitative risk analysis, the ALE formula is SLE × ARO; after controls, the SLE or ARO may decrease, yielding a new ALE. The control cost is used in a separate Return on Security Investment (ROSI) calculation: ROSI = (ALE_pre - ALE_post) - Cost_of_Control. Confusing these two metrics is a common pitfall in risk management.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
A practitioner preparing for the CRISC exam encounters this exact type of scenario on the job. The correct answer here is not the most general option — it is the best answer for the specific constraint described. Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option. Real exam questions reward reading the full scenario before eliminating options, because the constraint defines which answer fits.
What to study next
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FAQ
IT Risk Assessment — This question tests IT Risk Assessment — Read the scenario before looking for a memorised answer..
The correct answer is: $200,000 — The residual risk is the remaining Annual Loss Expectancy (ALE) after controls are applied. Since the ALE after implementing the encryption control is explicitly stated as $200,000, that is the residual risk after one year of control operation. The control cost of $150,000 is a separate cost-of-control figure and does not reduce the ALE further; it is used for cost-benefit analysis, not for calculating residual risk.
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
Read the scenario before looking for a memorised answer.
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Same concept, more angles
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 of a legacy system, the assessor finds that no control is currently in place. The inherent risk level is 'critical'. The residual risk will be:
hardWhy B: Residual risk is the level of risk remaining after controls are applied. Since the scenario explicitly states that no control is currently in place, the residual risk remains identical to the inherent risk level, which is 'critical'. Therefore, the residual risk is also critical.
Last reviewed: Jun 25, 2026
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