Annualized Loss Expectancy (ALE) estimates the expected financial loss from a specific threat over one year. ALE equals the Single Loss Expectancy (SLE) — the dollar value of a single incident — multiplied by the Annualized Rate of Occurrence (ARO) — the estimated frequency per year.
If a server failure would cost $100,000 to recover from (SLE) and is expected to occur twice per year (ARO = 2), the ALE is $200,000. This figure can be compared against the cost of controls that prevent the failure, providing the financial language needed to justify security investments to business leadership.
CISSP Relevance
ALE is a foundational concept in Domain 1 (Security and Risk Management) under quantitative risk analysis. CISSP candidates must understand the complete ALE calculation including SLE and ARO, how ALE compares against safeguard cost to justify controls, and the limitations of quantitative risk analysis.
External reference: NIST Glossary Annualized Loss Expectancy
Related terms: Risk Assessment, Risk Management