Question

Your company, an online discount pet supply store, has calculated that a loss of Internet connectivity for 3 hours results in a potential loss of $2,000 to $3,000 and that there is a 50% chance of this occurring each year. What is the annual expected loss from this exposure

Answer 1

Answer:

The annual expected loss is $1,250

Explanation:

The annual expected loss can be calculated by multiplying the probability that a risk will occur in a particular year (ARO) by the expected monetary loss every time a risk occurs, (SLE).

ALE=ARO*SLE

In this case,

ARO = 50%

SLE is $2,000 to $3,000. We consider an average so SLE is $2,500

ALE=  $2,500 *50%=$1,250