richman is considering buying insurance for each smartphone.use the ALE to detrmine the usefulness of this safeguard.for example,they can purchase insurance for each device for $25.00 per year.The safeguard value is $25x 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?
Current ALE=
ARO with control =5
ALE with control= (current ALE-ALE with control)
safeguard value(cost of control)=25,000
Realized savings= (savings with control-safe guard value)
SLE =37
To determine whether the company should purchase insurance for each smartphone, we need to calculate the current Annualized Loss Expectancy (ALE) and compare it to the ALE with the control (insurance).
1. Calculate the Current ALE:
The Current ALE can be calculated by multiplying the Annual Rate of Occurrence (ARO) by the Annual Loss Expectancy (ALE) without any control measures in place. The ARO and ALE are not provided in your question, so you'll need to provide these values.
2. Calculate the ALE with Control:
If the insurance is purchased, the ARO will decrease to 5. So to calculate the ALE with control, multiply the new ARO (5) by the ALE without any control measures in place.
3. Calculate the Safeguard Value (Cost of Control):
The cost of purchasing insurance for each device is $25.00 per year. Multiply this cost ($25) by the number of devices (1,000) to calculate the safeguard value ($25,000).
4. Calculate Realized Savings:
Realized savings can be calculated by subtracting the safeguard value from the savings with the control (ALE with control - safeguard value).
To make the final decision, compare the current ALE with the ALE with control. If the realized savings are greater than zero, it might be beneficial to purchase the insurance. However, it ultimately depends on the values of the ALE, ARO, and the company's risk appetite.