Scenario 3: Quantifying Risk Exposure

Before we look at an equation to calculate Risk Exposure (RE) on an annual basis (ALE), let me point out that the equation for Risk Exposure uses two variables - Single Lost Exposure (SLE) and Annual Rate of Occurrence (ARO). ALE is the product of these two variables. The equation for ALE is given below.

Suppose the ARO is 0.5 (once in two years) and the SLE is $10,000. Compute the ALE. Use approximately 50 words to explain what this value means.