Question

kim is the risk manager for a large organization. she is evaluating whether the organization should purchase a fire suppression system. she consulted a variety of subject matter experts and determined that there is a 1 percent chance that a fire will occur in a given year. if a fire occurred, it would likely cause $2 million in damage to the facility, which has a $10 million value. given this scenario, what is the annualized loss expectancy (ale)? select one: a. $2,000 b. $20,000 c. $200,000 d. $2,000,000

Answer 1

The annualized loss expectancy (ALE) for the scenario described is $20,000, which is calculated by multiplying the 1 percent chance of a fire by the potential $2 million in damages.

Step-by-step explanation:

The annualized loss expectancy (ALE) is calculated by multiplying the potential loss from an event by the probability of that event occurring in any given year. In the scenario provided, Kim has determined that there is a 1 percent chance of a fire occurring in a given year, which if happened, would cause $2 million in damages. Using the formula ALE = (Probability of event) × (Potential loss), we get ALE = 0.01 × $2,000,000, which equals $20,000.