CRISC IT Risk Assessment Practice Question
An organization uses the FAIR framework to calculate annualized loss expectancy (ALE) for a specific risk. Given that the single loss expectancy (SLE) is $50,000 and the annualized rate of occurrence (ARO) is 0.2, what is the ALE?
⚠ Common exam trap
Many exam-takers confuse the ALE formula with the SLE formula or misplace the decimal point in ARO (0.2 vs. 2.0), leading to inflated values like $100,000 or $250,000.
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
✓
$10,000
The annualized loss expectancy (ALE) is calculated by multiplying the single loss expectancy (SLE) by the annualized rate of occurrence (ARO). Given SLE = $50,000 and ARO = 0.2, the ALE is $50,000 × 0.2 = $10,000. This aligns with the FAIR framework's quantitative risk analysis formula.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
$250,000
Why it's wrong here
ALE is SLE multiplied by ARO: $50,000 × 0.2 = $10,000, so $250,000 divides SLE by ARO instead. It is tempting because dividing by a fractional ARO yields a large figure that looks like a plausible annual exposure, yet the formula requires multiplication.
- ✗
$100,000
Why it's wrong here
ALE is SLE multiplied by ARO: $50,000 × 0.2 = $10,000, so $100,000 doubles the correct figure. It is tempting because it resembles the product of SLE and an ARO of 2, which would apply if the loss occurred twice annually.
- ✓
$10,000
Why this is correct
Multiplying SLE by ARO yields the annualised loss expectancy: $50,000 × 0.2 = $10,000. This satisfies the stem's requirement to quantify expected yearly loss for the risk, giving decision-makers the cost baseline needed to compare against control costs during risk response prioritisation.
- ✗
$50,000
Why it's wrong here
ALE is SLE multiplied by ARO: $50,000 × 0.2 = $10,000, so $50,000 treats ARO as 1. It is tempting because SLE equals ALE when the loss occurs exactly once per year, which is not the frequency given here.
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Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
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