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What is Annualized loss expectancy?

Annualized loss expectancy

This is the loss that can be expected for an asset due to risk over a one-year period. It's useful for working out whether a business decision is worthwhile.

Where have you heard about Annualized loss expectancy?

If you're a business owner, you might have used it in cost-benefit analysis when taking on a new project.

What you need to know about Annualized loss expectancy.

It can be calculated by multiplying the annual rate of occurrence (ARO) by single loss expectancy (SLE). SLE is the expected monetary loss every time a risk occurs, and ARO is the probability that a risk will occur in a particular year. So for example, if data suggests a major flood is likely to occur once every 25 years, then ARO is 1/25 or 0.04. If the risk has an annualized loss expectancy of £2,000, then it might not be worth spending £10,000 on new measures to prevent it.

Find out more about Annualized loss expectancy.

To learn more about the calculations involved, check out our guide to exposure factor.

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