Risk management processes used in determining project feasibility in the property development process early stages by Australia/New Zealand property developers

Matthew Moorhead, Lynne Armitage, Martin Skitmore

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Purpose
The purpose is to examine the risk management processes and methods used in determining project feasibility in the early stages of the property development process by Australia/New Zealand property developers, including Monte Carlo simulation, Bayesian models and real option theory embedded in long-term property development and investment decision-making as instruments for providing flexibility and managing risk, uncertainty and change.

Design/methodology/approach
A questionnaire survey of 225 Australian and New Zealand trader developers, development managers, investors, valuers, fund managers and government/charities/other relating to Australia/New Zealand property development companies' decision-making processes in the early stages of the development process prior to site acquisition or project commencement – the methods used and confidence in their organisations' ability to both identify and manage the risks involved.

Findings
Few of the organisations sampled use sophisticated methods; those organisations that are more likely to use such methods for conducting risk analysis include development organisations that undertake large projects, use more risk analysis methods and have more layers in their project approval process. Decision-makers have a high level of confidence in their organisation's ability to both identify and manage the risks involved, although this is not mirrored in their actual risk management processes. Although the majority of property developers have a risk management plan, less than half have implemented it, and a third need improvement.

Practical implications
Property development organisations should incorporate more modern and sophisticated models of risk analysis to determine the uncertainty of, and risk in, a change of input variables in their financial viability appraisals. Practical application includes using such multiple techniques as what-if scenarios and probability analysis into feasibility processes and utilise these specific techniques in the pre-acquisition stages of the property development process and, specifically, in the site acquisition process to support decision-making, including a live risk register and catalogue of risks, including identification of and plans for mitigation of project risks, as a form of risk management.

Originality/value
First study to examine the extent of the decision-making methods used by property developers in the pre-acquisition stage of the development process.
Original languageEnglish
JournalJournal of Property Investment and Finance
DOIs
Publication statusE-pub ahead of print - 14 Dec 2021

Fingerprint

Dive into the research topics of 'Risk management processes used in determining project feasibility in the property development process early stages by Australia/New Zealand property developers'. Together they form a unique fingerprint.

Cite this