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Difficulty: MediumRisk Identification, Assessment, and Response Strategies

A financial institution is evaluating the risk profile of its online identity verification service, which has an estimated Asset Value (AVAV) of $500,000\$500,000. A threat modeling report indicates that an unmitigated credential stuffing vulnerability has an Exposure Factor (EFEF) of 20%20\% per security incident. Threat intelligence metrics project an Annual Rate of Occurrence (AROARO) of 0.40.4 for this specific attack vector. Based on quantitative risk analysis principles, what is the Annual Loss Expectancy (ALEALE) associated with this risk?

  1. $40,000\$40,000Answer
  2. B
    $100,000\$100,000
  3. C
    $200,000\$200,000
  4. D
    $250,000\$250,000

Answer

The Annual Loss Expectancy (ALEALE) associated with this risk is $40,000\$40,000.
The correct calculation uses the quantitative risk assessment formula ALE=SLE×AROALE = SLE \times ARO, where SLE=AV×EFSLE = AV \times EF. Multiplying the Asset Value ($500,000\$500,000) by the Exposure Factor (0.200.20) yields a Single Loss Expectancy of $100,000\$100,000. Multiplying $100,000\$100,000 by the Annual Rate of Occurrence (0.40.4) results in an Annual Loss Expectancy of $40,000\$40,000.

Step-by-Step Solution

1
Calculate the Single Loss Expectancy (SLESLE)
SLE=AV×EF=$500,000×0.20=$100,000SLE = AV \times EF = \$500,000 \times 0.20 = \$100,000
Single Loss Expectancy represents the monetary loss expected from a single realization of a risk event.
2
Calculate the Annual Loss Expectancy (ALEALE)
ALE=SLE×ARO=$100,000×0.4=$40,000ALE = SLE \times ARO = \$100,000 \times 0.4 = \$40,000
Annual Loss Expectancy scales the single loss amount by the expected annual frequency of occurrence.

Key Concept

Quantitative Risk Assessment (ALE Calculation)
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Topics

Risk Identification, Assessment, and Response Strategies

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