hardMultiple Choice
ALE Calculation and Risk Decision
During a quantitative risk analysis, the risk practitioner determines that the single loss expectancy (SLE) for a ransomware attack is $500,000 and the annualized rate of occurrence (ARO) is 0.4. The organization has a risk appetite that accepts annual losses up to $150,000. What is the recommended action?
Quick Answer
The recommended action is to implement controls to reduce the likelihood or impact until the annual loss expectancy (ALE) is below $150,000. This is correct because the ALE is calculated by multiplying the single loss expectancy (SLE) of $500,000 by the annualized rate of occurrence (ARO) of 0.4, yielding $200,000, which exceeds the organization’s risk appetite of $150,000 in annual losses. On the CRISC exam, this scenario tests your ability to perform an annual loss expectancy calculation and risk decision, often appearing in quantitative analysis questions where you must compare the computed ALE against the stated risk appetite to determine if residual risk is acceptable. A common trap is assuming that a low ARO alone makes the risk tolerable, but the key is that any ALE above the appetite threshold demands remediation. Remember the memory tip: “ALE above appetite? Action required.”
⚠ Common exam trap
CRISC often tests whether candidates calculate ALE correctly and compare it to appetite — the trap is picking 'accept' or 'insurance' without doing the math, or assuming insurance fully addresses risk when it only transfers financial impact.
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
✓
Implement controls to reduce the likelihood or impact until ALE is below $150,000
The annualized loss expectancy (ALE) is SLE × ARO = $500,000 × 0.4 = $200,000, which exceeds the organization's risk appetite of $150,000. Since the risk is above appetite, the recommended action is to implement controls that reduce likelihood or impact until the ALE falls below the $150,000 threshold, aligning residual risk with appetite.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Purchase insurance to cover the potential loss
Why it's wrong here
Insurance transfers the loss but does not reduce the annualised loss expectancy of $200,000 ($500,000 × 0.4), which exceeds the $150,000 appetite. It is tempting because insurance is a recognised risk response for high-severity, low-frequency events, and would be valid once residual exposure is reduced to within appetite.
- ✗
Accept the risk because it is within the organization's risk appetite
Why it's wrong here
Annualised loss expectancy is $200,000 ($500,000 × 0.4), which exceeds the $150,000 appetite, so acceptance breaches the stated threshold. It is tempting because acceptance is valid when exposure sits inside appetite, but here the calculated ALE is above it, so the risk requires treatment or mitigation.
- ✗
Reassess using qualitative analysis because the ARO is not precise
Why it's wrong here
Qualitative reassessment discards valid quantitative inputs; ARO 0.4 is a legitimate estimate, and the calculation (ALE $200,000) already exceeds the $150,000 appetite. It is tempting because imprecise frequencies can warrant qualitative treatment, but here the numbers are sufficient, so the risk must be treated rather than re-analysed.
- ✓
Implement controls to reduce the likelihood or impact until ALE is below $150,000
Why this is correct
ALE equals SLE multiplied by ARO, giving $200,000, which exceeds the $150,000 appetite. Reducing likelihood or impact lowers ALE beneath that threshold, satisfying the stem's quantitative constraint rather than accepting, transferring or ignoring the residual risk.
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Same concept, more angles
1 more way this is tested on CRISC
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. A company calculates the annualized loss expectancy (ALE) for a server outage as $75,000. The cost to implement a high-availability solution is $200,000 with a lifespan of 5 years and annual maintenance of $10,000. What is the residual risk if the solution reduces outage likelihood by 90%?
hard- A.$50,000
- ✓ B.$7,500
- C.$42,500
- D.$57,500
Why B: $7,500. The annualized loss expectancy (ALE) before mitigation is $75,000. The high-availability solution reduces outage likelihood by 90%, so the residual ALE is 10% of $75,000 = $7,500. The cost of the solution ($200,000 capital with $10,000 annual maintenance over 5 years) is used to calculate the cost-benefit or net present value, but does not directly affect the residual risk figure, which is purely the remaining expected loss after controls are applied.
JA
Written and reviewed by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
Last reviewed September 2026 · checked against the official ISACA exam blueprint
This CRISC 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 CRISC exam.