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Annualized Loss Expectancy (ALE)

Annualized Loss Expectancy (ALE) is a risk management metric used to estimate the expected financial loss from a specific risk over the course of a year. It is calculated by multiplying the single loss expectancy (SLE), which is the monetary loss from a single occurrence of the risk, by the annual rate of occurrence (ARO), which is the frequency with which the risk is expected to occur in a year. ALE helps organizations quantify the potential financial impact of risks, aiding in decision-making regarding risk mitigation strategies and investments in security measures.

Example

If a company estimates that a data breach could cost $100,000 (SLE) and expects such breaches to occur twice a year (ARO of 2), the ALE would be $200,000.

Key points

• Estimates the expected financial loss from a specific risk over a year.

• Calculated by multiplying single loss expectancy (SLE) by annual rate of occurrence (ARO).

• Helps in assessing the financial impact of risks and planning mitigation strategies.

Quick Answers to Curious Questions

ALE measures the expected financial loss from a specific risk over a year, helping organizations quantify and manage risks.

It’s calculated by multiplying the single loss expectancy (SLE) by the annual rate of occurrence (ARO) of the risk.

ALE helps organizations understand the potential financial impact of risks, enabling them to make informed decisions about investing in risk mitigation.