hardMultiple ChoiceObjective-mapped
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.”
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 ALE is $500,000 * 0.4 = $200,000, which exceeds the organization's risk appetite of $150,000 per year. Therefore, the risk is not acceptable, and controls must be implemented to reduce either the SLE (impact) or ARO (likelihood) until the ALE falls below the risk appetite threshold. Option A is incorrect because purchasing insurance may transfer risk but does not address the need to bring ALE within appetite; the organization must first attempt to reduce risk cost-effectively. Option B is incorrect because the ALE exceeds the risk appetite, so acceptance is not justified. Option C is unnecessary; quantitative analysis already provides actionable data. Option D is the appropriate action as it aims to lower the risk to an acceptable level.
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 risk but does not reduce ALE; it may be considered but not recommended without evaluating cost.
- ✗
Accept the risk because it is within the organization's risk appetite
Why it's wrong here
ALE of $200,000 exceeds appetite of $150,000; cannot accept.
- ✗
Reassess using qualitative analysis because the ARO is not precise
Why it's wrong here
Quantitative analysis is valid; switching methods does not solve the exceedance.
- ✓
Implement controls to reduce the likelihood or impact until ALE is below $150,000
Why this is correct
Since ALE exceeds appetite, controls are necessary to bring residual risk within tolerance.
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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 by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
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.