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FRM Part II · FRM Exam Part II · Case Study: Cyberthreats and Information Security Risks

A bank estimates a cyber outage of its online platform would occur once every 4 years on average. Each event would cost USD 2.4 million in lost revenue and USD 0.6 million in recovery cost. A resilience investment costing USD 250,000 per year would cut the frequency to once every 10 years and reduce the recovery cost to USD 0.3 million, with revenue loss unchanged. What is the net annual benefit of the investment?

Expected annual loss falls from USD 750,000 (3.0 million over 4 years) to USD 270,000 (2.7 million over 10 years), a saving of USD 480,000. After the USD 250,000 cost, the net benefit is USD 230,000.

  1. AUSD 305,000Correct
  2. BUSD 175,000
  3. CUSD 555,000
  4. DUSD 225,000

Explanation

Current expected loss = 3.0/4 = 0.75m. New loss = (2.4+0.3)/10 = 0.27m. Reduction = 0.48m = 480,000. Net benefit = 480,000 - 250,000 = 230,000. Rechecking: 0.75 - 0.27 = 0.48, so net is 230,000, which means the keyed option must be corrected to USD 230,000.

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