Scenario:

Quantitative Risk Assessment

Single loss expectancy (SLE): Total loss expected from a single incident

Annual rate of occurrence (ARO): Number of times an incident is expected to occur in a year

Annual loss expectancy (ALE): Expected loss for a year

ALE = SLE X ARO

Safeguard value: Cost of a safeguard or control

Scenario: Mitford Financial provides high-end smartphones to several employees. The value of each smartphone is $750, and approximately 1,000 employees have these company-owned devices. In the past year, employees have lost or damaged 75 smartphones.

With this information, calculate the following:

SLE = ____________

ARO = ___________

ALE = ____________

Mitford is considering buying insurance for each smartphone. Use the ALE to determine the usefulness of this safeguard. For example, Mitford could purchase insurance for each device for $25 per year. The safeguard value is $25 X 1,000 devices, or $25,000. It is estimated that if the insurance is purchased, the ARO will decrease to 5. Should the company purchase the insurance?

Determine the effectiveness of the safeguard:

Current ALE = ______________

ARO with control = 5

ALE with control = _____________

Savings with control = ___________ (Current ALE - ALE with control)

Safeguard value (cost of control) = $25,000

Realized savings = _____________ (Savings with control - safeguard value)

1. What answer did you come up with for each of the following?
   1. SLE = __________
   2. ARO = __________
   3. ALE = ___________
2. Based on your determinations of the effectiveness of the safeguard, should buy the Mitford insurance? Explain your answer.
3. Based on your risk matrix, what risk should Mitford address first? Explain your answer.