Chapter 7, Problem 4E

Program Plan Intro

Single loss expectancy:

• The expected monetary loss every time a risk occurs is called the Single Loss Expectancy.
• The Single Loss Expectancy (SLE), Exposure Factor (EF) and Asset Value (AV) are related by the formula:
  • SLE = EF * AV
• Introducing this conceptual breakdown of Single Loss Expectancy into Exposure Factor and Asset Value allows us to adjust the two terms independently and is related to risk management and risk assessment.
• Asset Value may vary with market changes, inflation while Exposure Factor can be reduced by enabling preventive measures.

Annualized loss expectancy:

• The product of the single loss expectancy (SLE) and the annual rate of occurrence (ARO) give annualized loss expectancy (ALE).
• It is mathematically expressed as:
  • ALE = SLE * ARO
• The important feature of Annualized Loss Expectancy is that it can be used directly in a cost- benefit analysis.