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Governance, Risk, Audit & Privacy · Foundational

Annualized Loss Expectancy (ALE)

Expected yearly monetary loss from a risk: ALE = SLE x ARO.

Definition

ALE converts a risk into an annual dollar figure that can be compared with the annual cost of controls. It is the product of single loss expectancy and annualized rate of occurrence. A control is generally cost-justified when the reduction in ALE exceeds its annualized cost.

Example

SLE $100,000 x ARO 0.2 = ALE $20,000 per year.

Exam tip

Control value = ALE before - ALE after - annual cost of control; spending more than this is not justified.

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