Execution risk

The risk that a company's plans will not work is called execution risk. This usually applies at a time of change, for example when introducing new systems or entering a new market.

A good example of this is when a company is rolling out complex new systems that are difficult to implement - such as ERP systems. There is a very good chance that something will go wrong somewhere, and that it will cost money to fix, and, possibly, that there will be loss of business while it is being fixed.

Similarly, new product introductions might fail because a product does not live up to promises or because it hits manufacturing difficulties. These are also execution risks. It may also fail because it does not appeal to consumers, which would not be regarded as execution risk - execution risk is internal, not related to market conditions.

Mergers and acquisitions are another common source of execution risk as (in order to gain whatever synergies are expected) it is necessary re-structure businesses and integrate businesses.

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