Asked Oct 22, 2019

What is single loss expectancy? What is annualized loss expectancy? What is wrong with these risk methods?


Expert Answer

Step 1

Single loss expectancy is related to risk management and is considered as the value related to money (e.g. dollars), that is expected from the risk occurrence on some asset. This occurrence is related to a single event. It is mathematically expressed as shown below:

SLE = AV × EF,

Where, SLE is Single loss expectancy

              AV is Asset value, and

              EF is Exposure Factor which is represented as a percentage of Asset Value.

Step 2

Annual loss expectancy is the monetary value which is expected for a risk to occur in one year. It is mathematically given as:


Where, ALE is Annual loss expectancy,

             ARO is annual rate of occurrence and

             SLE is single loss expectancy

Step 3

Example for SLE and ALE is given as:

Suppose there is an asset whose value is $20,000 with an exposure factor 10 %. Then SLE is calculated as $20,000 × 10% = $2000.

Now for an annual rate of occurr...

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