Expected Loss represents the mean value of potential losses, computed by multiplying the probability of each loss scenario by its financial impact and summing across all scenarios. It serves as a baseline risk metric for capital allocation, pricing, and reserve setting. In credit risk, Expected Loss equals Probability of Default × Loss Given Default × Exposure at Default. An institution with a 2% default probability, 40% loss severity, and $1 million exposure has an expected loss of $8,000. Unlike worst-case measures, expected loss reflects the average outcome over many periods, making it suitable for provisioning but insufficient for capital planning, which must address unexpected losses and tail risks.