What does ALE stand for in risk management?

• A. Annual Loss Expectancy
• B. Annual Loss Estimate
• C. Aggregate Loss Exposure
• D. Asset Loss Evaluation

Answer: (A)

In risk management, the key idea behind ALE is to quantify the expected financial impact of threats on a yearly basis. It represents the amount of loss you would expect to incur in a year due to a particular threat by combining how much a single incident would cost with how often that incident happens on average.

Specifically, ALE = Single Loss Expectancy (the cost of a single occurrence) × Annualized Rate of Occurrence (how many times per year the event is expected to occur). For example, if one incident could cost $10,000 (Single Loss Expectancy) and it’s expected to happen 0.5 times per year (ARO), the ALE would be $5,000 per year.

This metric is useful for deciding whether to implement controls by weighing the cost of the control against the reduction in annual loss. The other options are not standard terms used in this context: they do not represent the defined yearly expected loss figure that ALE provides.