Recognition of Benefits

Recognition risk is the inability to realize the projected benefits established prior to implementation. It is normally caused by unrealistic goal setting and is very common among mergers and acquisitions activity. Suppose a company is considering an acquisition for purposes of revenue enhancement. The projection is to increase revenues by 10 percent. Anything that may impede this revenue increase can be considered a risk (such as poor economic conditions and loss of customers). Many of these factors cannot be controlled by management. In fact, management can be its own worst enemy by creating recognition risks. To sell the concept to shareholders, aggressive and unachievable goals may be set.