Calculate SLE and ALE: Formulas and Example

Quick Answer

SLE comes out to $20,000 and ALE to $10,000 because these figures are built from the same two-step formula every time: Single Loss Expectancy is Asset Value multiplied by Exposure Factor, and Annualized Loss Expectancy is that SLE multiplied by the Annualized Rate of Occurrence. Here, the asset is valued at $50,000, and the Exposure Factor of 40% represents the percentage of that asset's value expected to be lost in a single incident; multiplying the two gives SLE = $50,000 times 0.40 = $20,000, meaning one occurrence of this risk is expected to cost the organization $20,000. From there, the Annualized Rate of Occurrence of 0.5 represents how often the event is expected per year, in this case less than once a year, roughly once every two years, and multiplying SLE by that frequency gives ALE = $20,000 times 0.5 = $10,000, the expected average annual cost of this risk once frequency is factored in. Understanding why ALE is smaller than SLE in this case is instructive: whenever the ARO is below 1, meaning the event isn't expected to happen every single year, the annualized figure will be smaller than the cost of any single occurrence, because the loss is being spread out across more than one year on average. This SLE-then-ALE sequence is the standard path through quantitative risk calculations, and any question giving you Asset Value, Exposure Factor, and ARO is testing whether you can chain the two multiplications together in the right order.