What is the formula for calculating ALE?

• A. ALE equals SLE plus ARO
• B. ALE equals SLE minus ARO
• C. ALE equals SLE divided by ARO
• D. ALE equals SLE times ARO

Answer: (D)

ALE is the expected annual loss from a risk. It’s found by multiplying the amount of money you lose in a single incident (single loss expectancy, SLE) by how often that incident is expected to occur in a year (annualized rate of occurrence, ARO). This product gives the average dollar loss you should anticipate each year.

Think of SLE as the impact of one event, and ARO as the frequency of that event per year. By multiplying them, you scale the per-event loss by how often it happens, yielding a meaningful annual figure. For example, if one incident costs $50,000 (SLE) and is expected to happen 2 times a year (ARO), the ALE would be $100,000 per year.

Other operations don’t reflect this combination of impact and frequency. Adding or subtracting would mix different concepts, and dividing would produce a non-sensical per-year ratio. The multiplication directly expresses the expected yearly loss.