Business

The central tenet of enterprise risk management is that every entity exists to provide value to stakeholders. Because all entities face uncertainties, there is a need to opportunities with established goals. The aim is to maximize value and reduce overall risk. In the article, enterprise risk management is defined as a process designed to identify potential risks, opportunities, and settings for value creation (statistically, value creation is tantamount to asset formation). It consists of eight interrelated components. Here are as follows

Internal Environment  this encompasses the rubric of an organization, and sets the basis for how risks are viewed and address by legitimate stakeholders

Objective Setting  objectives are defined as the immediate goals of an organization. Objective setting includes the immediate social environment as it relates to the needs of the organization
Event Identification- organization and extra-organizational events must be identified. This purpose of this process is to properly distinguish risks from opportunities

Risk Assessment  risks are evaluated on the basis of urgency, likelihood, and potential impact
Risk Response  there is a selection of risk responses  the aim is to align risks with the organizations risk tolerances and appetite

Control Activities  risk responses help the organization develop policies and procedures designed to reduce overall risks

Information and Communication  policies and procedures are communicated to all stakeholders. The aim is to give people timeframe in carrying out their responsibilities

Monitoring  the organization monitors the modifications made.

Generally, the paper follows the format prescribed by the textbook. Note that the paper begins with an analysis of the internal environment. For example, according to the author, while the motion picture industry is a multi-billion dollar industry (in 2009 for example, total box office receipts amounted to  9.57 billion in the US alone), the landscape of industry players is very competitive.

Event identification and objective setting are combined to allow the author to synthesize important points in the paper. For example, the author argues that while the goal of motion picture players is to maximize value creation, it is also their goal to minimize potential risks. Balancing risks and values is related to the setting itself. Thus, according to the author, the motion picture industry is inherently a risky market because demand is very unpredictable.

Risk assessment occupies a significant part of the paper. The author appeals to both subjective studies and statistics to produce theoretically sound arguments. According to the author, it is not true that co-financing increases risk because there exists no covariance between movies. The traditional notion of risk analysis is revised to provide a good discussion ground for analysis. Statistics is an essential part of risk analysis because 1) risks are measured by probabilities, 2) risks are the generalized (drafted) variance of an event, and 3) risk is a measure of standard.

The other four components are either removed or neglected in the paper perhaps because of inconvenience. The paper needs theory to explain the paradoxes in the presented hypotheses (Portfolio Choice Theory and Law of Large Numbers). Indeed, in order to fully substantiate competing claims, the author opted to discuss their statistical implications rather than argue of their practicality.