ALE Calculation

A.

Single Loss Expectancy (SLE) is the dollar amount that would be lost if there was a loss of an asset.

Annualized Rate of Occurrence (ARO) is an estimated possibility of a threat to an asset taking place in one year (for example if there is a change of a flood occuring once in 10 years the ARO would be .1, and if there was a chance of a flood occuring once in 100 years then the ARO would be .01)

The following answers are incorrect: gross loss expectancy x loss frequency.

Is incorrect because this is a distractor.

actual replacement cost - proceeds of salvage.

Is incorrect because this is a distractor.

asset value x loss expectancy.

Is incorrect because this is a distractor.

ALE stands for Annualized Loss Expectancy and is a commonly used metric in information security risk management. It is used to calculate the expected financial loss that an organization may incur over the course of a year due to a specific type of security threat or vulnerability.

The ALE calculation can be represented by the formula: ALE = SLE x ARO where SLE is the Single Loss Expectancy and ARO is the Annualized Rate of Occurrence.

The Single Loss Expectancy (SLE) is the estimated monetary loss that would result from a single occurrence of a threat exploiting a vulnerability. For example, if an organization has a server that stores sensitive data and the SLE for a successful hack of that server is estimated to be $50,000, then the SLE would be $50,000.

The Annualized Rate of Occurrence (ARO) is the estimated frequency with which the threat will occur within a year. For example, if the organization estimates that the server is likely to be hacked once every two years, then the ARO would be 0.5 (1 occurrence every 2 years).

Using the above example values, the ALE would be: ALE = $50,000 x 0.5 = $25,000

Now let's examine the options given:

A. Single Loss Expectancy x Annualized Rate of Occurrence. This represents the ALE calculation formula, so it is the correct answer.

B. Gross Loss Expectancy x Loss Frequency. This formula is not used to calculate ALE. Gross Loss Expectancy is not a standard term in information security risk management, but it could refer to the total expected loss from all occurrences of a threat over a certain period of time. Loss Frequency would be the expected number of occurrences within that time period. However, this is not the same as ARO, which represents the annual frequency.

C. Actual Replacement Cost - Proceeds of Salvage. This formula is used to calculate the net loss of an asset, not the ALE. Actual Replacement Cost is the cost of replacing an asset after it has been damaged or destroyed. Proceeds of Salvage is the value of any salvaged material or components that can be recovered from the damaged asset. Subtracting the Proceeds of Salvage from the Actual Replacement Cost gives the Net Loss.

D. Asset Value x Loss Expectancy. This formula does not include the ARO component, so it is not a correct representation of the ALE calculation. Loss Expectancy is similar to SLE, representing the expected loss from a single occurrence of a threat. Asset Value represents the value of the asset being protected. However, without the ARO component, this formula cannot provide an annualized loss expectation.