Question

Kim is the risk manager for a large organization. she is evaluating whether the organization should purchase a fire suppression system. she consulted a variety of subject matter experts and determined that there is a 1 percent chance that a fire will occur in a given year. if a fire occurred, it would likely cause $2 million in damage to the facility, which has a $10 million value. given this scenario, what is the annualized loss expectancy (ale)?

Answer 1

The annualized loss expectancy (ALE) is the product of the annual rate of occurrence (ARO) and the single loss expectancy (SLE). The ARO is provided as 1% chance that a fire will occur per year. The SLE is provided as $2 million in damages. Thus the formula to calculate the ALE is: ALE = 0.01 X $2,000000. The annualized loss expectancy is $20,000.