It gets worse when you deal with even more rare and expensive events. Imagine you're in charge of terrorism mitigation at a chlorine plant. What's the cost to your company, in money and reputation, of a large and very deadly explosion? $100 million? $1 billion? $10 billion? And the odds: 1 in a hundred thousand, 1 in a million, 1 in 10 million? Depending on how you answer those two questions-and any answer is really just a guess-you can justify spending anywhere from $10 to $100,000 annually to mitigate that risk.
Or take another example: airport security. Assume that all the new airport security measures increase the waiting time at airports by-and I'm making this up-30 minutes per passenger. There were 760 million passenger boardings in the United States in 2007. This means that the extra waiting time at airports has cost us a collective 43,000 years of extra waiting time. Assume a 70-year life expectancy, and the increased waiting time has "killed" 620 people per year-930 if you calculate the numbers based on 16 hours of awake time per day. So the question is: If we did away with increased airport security, would the result be more people dead from terrorism or fewer?
This kind of thing is why most ROI models you get from security vendors are nonsense. Of course their model demonstrates that their product or service makes financial sense: They've jiggered the numbers so that they do.
This doesn't mean that ALE is useless, but it does mean you should 1) mistrust any analyses that come from people with an agenda and 2) use any results as a general guideline only. So when you get an ROI model from your vendor, take its framework and plug in your own numbers. Don't even show the vendor your improvements; it won't consider any changes that make its product or service less cost-effective to be an "improvement." And use those results as a general guide, along with risk management and compliance analyses, when you're deciding what security products and services to buy.
Bruce Schneier is the chief security technology officer of BT. His new book, Schneier on Security, will be published by John Wiley & Sons in September. His blog can be found at www.schneier.com.