Which formula is used to calculate Annual Loss Expectancy?

The formula used to calculate Annual Loss Expectancy (ALE) is derived from two key components: the Single Loss Expectancy (SLE) and the Annual Rate of Occurrence (ARO). Single Loss Expectancy represents the monetary loss expected from a single incident, while the Annual Rate of Occurrence indicates how many times that incident is anticipated to occur within a year.

To derive the ALE, you multiply the SLE by the ARO. This calculation provides a financial forecast of the expected loss to an organization over a year based on the likelihood of incidents and the impact of each incident. By using this formula, organizations can better understand their potential risks and prioritize their risk management resources accordingly.

This method emphasizes the importance of both the frequency of potential incidents and their potential financial impact, allowing organizations to make informed decisions about risk mitigation strategies and budgeting for security measures.