Quantitative Risk Analysis

Step 1

Determine the asset value (AV) of the asset affected by the risk

Step 2

Determine the likelihood that the risk will occur. This is expressed as the number of times the risk is expected each year and is described as the annualized rate of occurrence (ARO).

• A risk that is expected to occur twice a year has an ARO of 2.0

Step 3

Determine the amount of damage that will occur if the risk materializes. This is known as the exposure factor (EF) and is expressed as a percentage of the asset expected to be damaged

Step 4

Calculate the single loss expectancy (SLE). The amount of financial damage expected each time a risk materializes.

• SLE = AV * EF

Step 5

Calculate the annualized loss expectancy (ALE). The amount of damage expected from a risk each year

• ALE = SLE * ARO