Quantitative Risk

Quantitative Risk

Nov 18, 2019

Risk can be demonstrated quantitatively using mathematics and actual historical data or predictive data modeling. Numeric quantification of the consequences of a risk event provides an objective measure to describe risk. A common and fundamental measure of risk is in the equation Annual Loss Expectancy (ALE) = Annual Rate of Occurrence (ARO) x Single Loss Expectancy (SLE). Annual Loss Expectancy (ALE) is the estimated amount of loss predicted throughout a year based on historical and predictive factors. Annual Rate of Occurrence (ARO) is the estimated number of times a loss event of a certain kind will happen in a year. Single Loss Expectancy (SLE) is the amount of loss in local currency expected for one occurrence of a loss event. There are many actuarial models for risk management especially in the insurance industry; however, there are also specialized quantitative risk management models for risk management professionals in other areas such as cybersecurity. The FAIR Institute Methodology for Quantifying Information Risk is one example of a number of methods that have gained traction within industry.

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