Which of the following best represents a calculation for Annual Loss Expectancy (ALE)?

Question

Options

• ASingle loss expectancy multiplied by the annual rate of occurrence
• BTotal loss expectancy multiplied by the total loss frequency
• CValue of the asset multiplied by the loss expectancy
• DReplacement cost multiplied by the single loss expectancy

• A
  77% (55)
• B
  6% (4)
• C
  3% (2)
• D
  14% (10)

Explanation

ALE = SLE × ARO - Option A is correct because Annual Loss Expectancy is defined as the product of Single Loss Expectancy (the monetary loss from one incident) and the Annual Rate of Occurrence (how many times that incident is expected per year). This formula gives a yearly dollar estimate of risk exposure for a given threat.

Why the distractors fail:

• B - "Total loss expectancy" and "total loss frequency" aren't standard risk formula terms; this conflates concepts without a real definition.
• C - Asset value alone doesn't account for how often a loss occurs; it also misuses "loss expectancy" as a standalone multiplier.
• D - Replacement cost is a component used when calculating SLE, not a separate factor multiplied against it - this double-counts.

Memory tip: Think of it as a word problem - how much do you lose each time (SLE) times how often it happens per year (ARO) = your annual hit. The formula mirrors "unit cost × frequency," a pattern that appears throughout risk math.

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