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Expected Loss Calculator

Enter the probability of loss and the loss amount.

Result

$2,000.00
2.50%
$80,000.00

How it is calculated

The tool multiplies the chance of the loss by its size: EL = (probability ÷ 100) × loss amount. The probability is a percentage from 0 to 100 (values above 100 show no result), and the loss amount is the money you would lose if the event happened, in dollars; a negative loss amount also shows no result. The result is a long-run average, not the amount you will lose in any single case, because the event either happens (you lose the full amount) or it does not (you lose nothing). The probability must refer to the period you care about, for example one year, and the loss amount should already be net of anything you expect to recover. The tool takes one probability and one amount, so it does not split the loss into default probability and loss rate for you. The probability is echoed rounded to two decimals.

Worked example

A warehouse has a 2.5% chance per year of a flood, and a flood would cost $80,000 in damaged stock and downtime. Convert the percentage: 2.5 ÷ 100 = 0.025. Multiply by the loss: 0.025 × 80,000 = $2,000.00 per year. That is the expected annual loss. If flood insurance costs well above $2,000 a year, the premium is paying for more than the average loss, such as protection from the one bad year in which the full $80,000 is lost.

Try this example →

Common mistakes

  • Entering the probability as a decimal. Typing 0.025 for 2.5% is read as 0.025%, so the expected loss falls from $2,000.00 to $20.00, 100 times too small. Type 2.5 for 2.5%.
  • Mixing time periods, such as a monthly probability with an annual loss total. Both inputs must cover the same period.
  • Using the expected loss as a worst-case figure. Here it is $2,000, but the actual loss in a bad year is $80,000.
  • Entering the gross exposure when part of it is recovered. The amount should be the loss after recoveries such as insurance payouts or collateral.
  • Adding up expected losses of related risks as though they were independent. The sum is only a sensible average if the risks are separate; events that occur together can produce a far larger loss at once.

Sources

About this calculator

Expected loss is a core risk-management concept used to put a single number on an uncertain future cost: multiply how likely a bad outcome is by how bad it would be if it happened. In credit risk and banking, this is formalized as EL = PD × LGD × EAD (probability of default × loss given default × exposure at default), a framework baked into Basel banking capital rules.

Outside banking, the same probability-times-severity logic shows up in insurance underwriting, project risk registers, cybersecurity risk scoring, and business continuity planning — anywhere a manager needs to compare risks that differ in both how likely and how damaging they are, or decide whether the cost of mitigation is worth it.

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