Obsolescence Risk

What is ‘Obsolescence Risk’

The risk that a process, product or technology used or produced by a company for profit will become obsolete, and therefore no longer competitive in the marketplace. Obsolescence risk is most significant for technology-based companies or companies with products or services based on technological advantages.

Explaining ‘Obsolescence Risk’

Obsolescence risk is a factor for all companies to some degree, and is a necessary side effect of a thriving and innovative economy. This risk comes into play, for example, when a company is deciding how much to invest in a new technology. Will that technology remain superior long enough for the investment to pay off, or will it become obsolete so soon that the company loses money? Obsolescence risk also means that companies wanting to remain competitive and profitable need to be prepared to make large capital expenditures any time a major product, service or factor of production becomes obsolete. This is challenging because it can be difficult to predict obsolescence and to budget accordingly.

Further Reading