Annual Loss Expectancy (ALE) Calculation for NHQ Project
Question
You are the project manager of the NHQ project in Bluewell Inc.
The project has an asset valued at $200,000 and is subjected to an exposure factor of 45 percent.
If the annual rate of occurrence of loss in this project is once a month, then what will be the Annual Loss Expectancy (ALE) of the project?
Answers
Explanations
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A. B. C. D.C.
The ALE of this project will be $ 108,000
Single Loss Expectancy is a term related to Quantitative Risk Assessment.
It can be defined as the monetary value expected from the occurrence of a risk on an asset.
It is mathematically expressed as follows: SLE = Asset value * Exposure factor Therefore, SLE = 200,000 * 0.45 - = $ 90,000 As the loss is occurring once every month, therefore ARO is 12
Now ALE can be calculated as follows: ALE = SLE * ARO - = 90,000 * 12 = $ 108,000
Annual Loss Expectancy (ALE) is calculated as the product of the Single Loss Expectancy (SLE) and Annual Rate of Occurrence (ARO).
Single Loss Expectancy (SLE) is the amount of loss that could be expected from a single occurrence of a risk event. It is calculated by multiplying the value of the asset with the exposure factor.
SLE = Asset value x Exposure factor
In this case, the asset value is $200,000 and the exposure factor is 45%, so:
SLE = $200,000 x 45% = $90,000
Annual Rate of Occurrence (ARO) is the expected number of times the risk event will occur in a year. In this case, the annual rate of occurrence is once a month or 12 times a year.
Now, we can calculate the Annual Loss Expectancy (ALE) by multiplying the Single Loss Expectancy (SLE) with the Annual Rate of Occurrence (ARO).
ALE = SLE x ARO ALE = $90,000 x 12 ALE = $1,080,000
Therefore, the Annual Loss Expectancy (ALE) of the project is $1,080,000, which is option C.
