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I am studying for an exam and came across a question asking to find what the single loss expectance would be, but I am failing to understand exposure factor in the calculation.

SLE = Asset Value * exposure factor

The question: Your company owns a machine that is worth $100,000, if it was damaged in a fire it would only be worth $8,000 in parts. What would the single loss expectance be?

My thought is that since the machine is $100,000 and you can only salvage $8,000 then the answer should be $92,000. You are expected to lose $92,000 when a fire occurs.

The answer they give is that SLE = $8,000. This doesn't make sense because you aren't losing $8,000, you are losing $92,000.

Can someone please explain why SLE is $8,000 and not $92,000?

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Exposure factor is a percentage: the percentage of the value that would be lost if a loss occurs. If the asset is completely lost, then the EF = 1.0

Let's redo your formula with a total loss:

SLE = AV * EF
SLE = $100 * 1.0
SLE = $100

But in your book, you are expected to lose 92%, so:

SLE = AV * EF
SLE = $100 * 0.92
SLE = $92

You can see that the more you "lose" in the event, the higher the exposure factor is, and the higher the SLE becomes.

The calculations are as you expect. I'd check your book's errata ....

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In this example Exposure Factor (EF) is equal to the worth of the parts of the machine after the fire ($8,000) divided by the value of the machine ($100,000) or EF = 8,000/100,000 or .08 then using the formula Single Loss Expectancy (SLE) = Asset Value ($100,000) * EF (.08) = $8,000

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Your SLE after the fire is $8,000 as that will be the new value after the fire. But before the fire your SLE is $92,000 as your machine value is expected to depreciate by 92% hence EF is 92% ans SLE = 100,000*0.92

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