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Difficulty: Very hardRisk Identification, Assessment, and Response Strategies

An organization is conducting a quantitative risk assessment for a core fintech payment processing service with an estimated asset value (AVAV) of 3,500,0003,500,000. Historical security data indicates an Exposure Factor (EFEF) of 40%40\% (0.400.40) for data corruption threats, with an Annual Rate of Occurrence (AROARO) of 0.50.5 (once every two years). The security team proposes implementing an automated real-time transaction validation safeguard that costs 45,00045,000 annually to maintain. This safeguard lowers the EFEF to 10%10\% (0.100.10), but due to operational overhead, the revised AROARO increases slightly to 0.60.6. Based on quantitative risk analysis, what is the net annual financial benefit of implementing this risk mitigation safeguard?

  1. 445,000445,000Answer
  2. B
    490,000490,000
  3. C
    480,000480,000
  4. D
    210,000210,000

Answer

The net annual financial benefit of implementing the safeguard is 445,000445,000.
The correct answer of 445,000445,000 accurately reflects the net financial benefit derived from the standard cost-benefit formula: (Baseline ALE - Residual ALE) - Annual Safeguard Cost. Baseline ALE is 3,500,000×0.40×0.5=3,500,000 \times 0.40 \times 0.5 = 700,000 .ResidualALEwithmodifiedmetricsis. Residual ALE with modified metrics is 3,500,000 \times 0.10 \times 0.6 = 210,000210,000. Subtracting 210,000210,000 from 700,000700,000 yields a gross ALE reduction of 490,000490,000. Subtracting the 45,00045,000 annual safeguard cost yields a net annual financial benefit of 445,000445,000.

Step-by-Step Solution

1
Calculate baseline Single Loss Expectancy (SLESLE) and Annual Loss Expectancy (ALEALE).
Baseline SLE=AV×EF=$3,500,000×0.40=$1,400,000SLE = AV \times EF = \$3,500,000 \times 0.40 = \$1,400,000. Baseline ALE=SLE×ARO=$1,400,000×0.5=$700,000ALE = SLE \times ARO = \$1,400,000 \times 0.5 = \$700,000.
Establishing initial risk exposure requires calculating pre-control annual losses.
2
Calculate post-control SLESLE and post-control ALEALE using updated parameters.
Post-control SLE=$3,500,000×0.10=$350,000SLE = \$3,500,000 \times 0.10 = \$350,000. Post-control ALE=$350,000×0.6=$210,000ALE = \$350,000 \times 0.6 = \$210,000.
Determining residual risk exposure accounts for both decreased exposure factor and adjusted annual occurrence rate.
3
Compute the gross risk reduction value.
Gross Loss Reduction = Baseline ALEALE - Post-control ALEALE = $700,000−$210,000=$490,000\$700,000 - \$210,000 = \$490,000.
Gross benefit evaluates the total financial loss prevented by the control per year.
4
Calculate net annual benefit by subtracting safeguard cost from gross reduction.
Net Benefit = Gross Loss Reduction - Annual Safeguard Cost = $490,000−$45,000=$445,000\$490,000 - \$45,000 = \$445,000.
Cost-benefit analysis requires factoring in operational maintenance overhead to justify security expenditure.

Key Concept

Quantitative Risk Analysis and Safeguard Cost-Benefit Evaluation
Estimated Time:3m 0s
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Topics

Risk Identification, Assessment, and Response Strategies

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