Single Loss Expectancy (SLE), Annual Rate of Occurrence (ARO), and Annual Loss Expectancy (ALE) Explained

D.

A quantitative risk assessment quantifies risk in terms of numbers such as dollar values.

This involves gathering data and then entering it into standard formulas.

The results can help in identifying the priority of risks.

These results are also used to determine the effectiveness of controls.

Some of the terms associated with quantitative risk assessments are: -> Single loss expectancy (SLE)-It refers to the total loss expected from a single incident.

This incident can occur when vulnerability is being exploited by threat.

The loss is expressed as a dollar value such as $1,000

It includes the value of data, software, and hardware.

SLE = Asset value * Exposure factor -> Annual rate of occurrence (ARO)-It refers to the number of times expected for an incident to occur in a year.

If an incident occurred twice a month in the past year, the ARO is 24

Assuming nothing changes, it is likely that it will occur 24 times next year.

Annual loss expectancy (ALE)-It is the expected loss for a year.

ALE is calculated by multiplying SLE with ARO.

Because SLE is a given in a dollar value, ALE is also given in a dollar value.

For example, if the SLE is $1,000 and the ARO is 24, the ALE is $24,000

-> ALE = SLE * ARO Safeguard value-This is the cost of a control.

Controls are used to mitigate risk.

For example, antivirus software of an average cost of $50 for each computer.

If there are 50 computers, the safeguard value is $2,500

A, B, C: These are wrong formulas and are not used in quantitative risk assessment.

Single Loss Expectancy (SLE) is the expected monetary loss that would be incurred from a single loss event. Annual Rate of Occurrence (ARO) is the expected number of times the loss event would occur within a year. Annual Loss Expectancy (ALE) is the expected monetary loss that would be incurred in a year due to a specific type of risk.

The formula for ALE is ALE = SLE x ARO, where SLE and ARO are inputs. Therefore, option D is the correct answer. ALE is calculated by multiplying SLE by ARO because ALE represents the expected monetary loss over a year, which is equal to the expected monetary loss per occurrence (SLE) multiplied by the expected number of occurrences per year (ARO).

Option A is incorrect because it suggests that ALE is equal to the ratio of ARO to SLE, which is not the case. Option B is also incorrect because it suggests that ARO is equal to the ratio of SLE to ALE, which is not correct. Option C is also incorrect because it suggests that ARO is equal to the product of ALE and SLE, which is not the case.

It's important to note that SLE, ARO, and ALE are important metrics in risk management and are used to estimate the potential impact and likelihood of specific types of risks. By calculating these metrics, organizations can make informed decisions about risk mitigation and management strategies.