Annualized Loss Expectancy (ALE)
Annualized Loss Expectancy (ALE) : "The Annualized Loss Expectancy (ALE) is the expected monetary loss that can be expected for an asset due to a risk over a one year period. It is defined as: ALE = SLE * ARO -- where SLE is the Single Loss Expectancy and ARO is the Annualized Rate of Occurrence. An important feature of the Annualized Loss Expectancy is that it can be used directly in a costbenefit analysis. If a threat or risk has an ALE of $5,000, then it may not be worth spending $10,000 per year on a security measure which will eliminate it. One thing to remember when using the ALE value is that, when the Annualized Rate of Occurrence is of the order of one loss per year, there can be considerable variance in the actual loss. For example, suppose the ARO is 0.5 and the SLE is $10,000. The Annualized Loss Expectancy is then $5,000, a figure we may be comfortable with". (Risky Thinking (Risk Management, Disaster Recovery, and Business), A Glossary of Risk Related Terms, 2007)
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