Urban Project Management - Essay Example

URBAN PROJECT MANAGEMENT “Theoretically, a risk only arises when an activity or event contains some degree of uncertainty.” In order to analyze and fully understand the implications of this statement, it is first critical to break down the fundamental aspects of this statement. The first point of interest in this statement is the word risk. In the context of this statement, risk refers to an event that may result in inadequate profits or even losses. In actuality, the term risk as used in the context of the statement refers primarily to danger of losses. In the context of urban planning, risk varies as it can be attributed to a number of causes primarily natural and man-made causes. The second aspect of the statement that needs to be examined clearly before any inferences can be drawn from the entire statement is the word uncertainty. In the context of the sentence, uncertainty refers to lack of assurance. It also refers to a situation that cannot be predicted effectively. In reference to an urban development scenario, it refers to a situation where stakeholders are not quite sure of the actual outcome of a given urban development project. This is despite their efforts aimed at studying the current market trends with the aim of predicting it. Uncertainty arises when market conditions cannot be predicted effectively with pinpoint accuracy. In the context of urban planning, uncertainty refers to the lack of complete assurance as to the sustainability of a given project. Given a scenario of uncertainty, urban planners may choose to proceed with a given urban development venture irrespective of the blurry future of the venture. This is a situation where this urban development plan enterprise may pay substantial dividends or end up in losses for the business investors. Thus, we have a situation where risk and uncertainty are intertwined. In essence, the risk is dependent on uncertainty. The key determining factor as far as the risk is concerned, is the degree of uncertainty associated with any given urban development plan. Thus, the assertion that risk only arises when an activity or an event contains some degree of uncertainty is by all means a very valid statement. This statement is clearly in line with the analytical findings that risk is dependent on the degree of uncertainty associated with a given venture or event. If the outcome of a given event is known with absolute certainty, business investors are at no risk at all in pursuing this venture because they are sure of the outcome of this event. Systematic risk refers to a scenario that is completely out of the control of a given urban development firm. This is a risk factor that occurs irrespective of the efforts of the affected urban development company. Apparent solution oriented tactics aimed at reducing these risk factors are also outside the control of the firm. These are risk factors that are exogenous in nature. They may be caused by issues such as political strife or even natural causes such as the weather (Christopher, 2007). A good example from the walkie talkie project initiation document is the flood risk. This is a factor completely outside the control of the developer since it is dependent on natural causes. The emergency sources that might bring reprieve to this entrepreneur are also outside the control of the entrepreneur. This is a classic example of a systematic risk, which is an occurrence in the business world and by extension in urban planning (Risk Management, 2004). As clearly outlined, risk is a situation that may lead to inadequate profits or even losses. One type of risk that all urban developers are concerned about is proper planning risk. This type of risk is associated with the urban developers failing to cover all aspects of a given urban development project. This might in turn affect the smooth running of the urban development project. A good example can be extrapolated from the project initiation document. In this document, not acquiring planning consent I well outlined a one of the risk factors to the walkie talkie project. Lack of these materials means that the project is taking place without the consent of the concerned authorities. As such, the authorities can halt the project at any time leading to significant loss for the urban developers in question (Crouhy et al., 2000). As such, it is the responsibility of the urban development form in question to ensure that all documentation necessary for the initiation of an urban development project is available prior to the inception of the project in question. As outlined in the project initiation document, the risk levels of not having necessary documentation are rather high and so is the impact. This make documentation one of the major prerequisites for any urban development project n any part of the world. Any urban project is most likely to be initiated by more than just one individual. In this context, we have what is referred to as a partnership. These partners are tasked with working together to ensure that the project in question gets completed. In some instances, however, the partners may fail to agree. A good example that is clearly outlined in the project initiation is partnership conflict. Such conflict might lead to the termination of a given project if tensions are not resolved. Political risk falls under this category when a given government is a partner in an urban development project. This refers to a situation where a given government can suddenly change its policies and in effect lead to significant losses for investors who were initially partners with the government in urban development (Cruver, 2002). This is one of the major reasons why foreign investors more often than not avoid setting up investment installations especially urban development projects in third world countries. A good example of how governments suddenly change their policies can significantly affect the business community can be extrapolated from the African country of Zimbabwe. Recently, the Zimbabwean president outlawed the owning of land by anyone of European descent. This greatly affected foreign real estate developers who had set up investments in the country in partnership with the government. Because of this policy change, investment installations and urban development projects that had been established by these foreign real estate developers were suddenly ceased by the government, in the process leading to losses. This is an example where political risk led to great losses. Thus, any investor choosing to carry out urban development investment projects in such politically volatile environments is doing so at risk because of the uncertainties associated with government process and the political environment in the country as well. The second type of risk that investors are concerned about is foreign exchange risk. When an investor in considering involvement in urban development in a foreign country, the investor must fully take into account the fact that fluctuations in the currency exchange rates are a key determining factor as to the exact worth of their investment (Cruve, 2002). Foreign exchange rates are more or less universal in the sense that they apply to all installations in a given country. Even if the share price of an investment in a foreign country increases, the overall worth of the entire investment is still susceptible to the foreign exchange rate in the given country. A good example of foreign exchange risk is a scenario where an American investor chooses to establish an apartment building investment in the Canadian stock. In essence, the value of the apartment building will be in the Canadian dollar. The share value of urban real estate might appreciate leading the investor to think that they are making profits. In this scenario, celebrations are premature until the performance of the Canadian dollar is evaluated in relation to the American dollar. If the Canadian dollar depreciates against the American dollar, the investor in question might be making losses despite the increase in urban real estate value of the investments in the Canadian stock. Another type of risk that affects the urban planning community is unsystematic risk. Unsystematic risk refers to prevailing internal factors within a given organization that may affect the performance of the organization in relating to registered profits (Francis, 2000). This is a type of risk that may be controlled from within the organization in question using endogenous tactics. There are three types of risk that are categorized under unsystematic risk. These are operational risk, financial or credit risk and liquidity risk (Diez, 2015). Operational risk refers to the actual operations of a business entity. These operations may be at risk in a number of situations. One such case involves employee dissatisfaction. This is a scenario that might lead to civil action by the employees and in effect halt the running of the organization in question (Francis, 2000). In the scenario of an urban project, the project surveyors might have complaints that might lead them to lay down their tools. This means that absolutely no progress will be made until this issue is resolved effectively and the urban planning surveyors get back to work. The second type of risk categorized under unsystematic risk is financial or credit risk. This type of risk deals with the capacity of an individual or a corporation to meet its financial obligations. These financial obligations include, but are not limited to the capacity to pay interest on debts. This type of risk is also concerned with the capacity of an individual to pay the principal on a given debt. This type of risk is especially applicable in scenarios where urban development investors tend to hold bonds in their perspective portfolios. It is of interest to note that bonds that have the lowest returns tend also to have the lowest amount of default risk for example government bonds. On the other hand, bonds with the highest returns tend to have the highest amount in terms of default risk. An example of bonds with potential high returns but also very high amount of risk are corporate bonds. In such an instance, an investor may choose to play it safe and invest in bonds with lower returns but significantly less risk. An investor may also choose to throw caution to the wind and invest in a high-interest rate bond at a higher risk (National Audit office, 2011). The third type of risk categorized under the umbrella of unsystematic risk is liquidity risk. Liquidity risk mainly emanates from the issue of assets and funding. Any given urban development venture needs to have the capacity to appeal to a given clientele within certain acceptable profit margins. The likelihood of the urban community warming up to a certain urban development project is, however, an uncertain event. This quantifies asset liquidity risk (Crouhy et al., 2000). The risk is associated with the incapacity of a given urban development plan to reap projected dividends. Funding, on the other hand, refers to capital used to finance the onset and operations of a given urban development venture. When a given urban developer makes a commitment to a given client, the development firm needs to ensure that it has the funds necessary to meet the terms of the agreement with the client in question. Funding liquidity risk refers to a scenario where these funds are not available to the urban development project. As a result, the urban development firm may not be able to meet the terms of the agreement with the client. Despite the obvious losses that such a scenario would generate for the business, it might also lead to litigation and in essence greater losses to the urban development firm. Thus, before any business venture is initiated, it needs to be well evaluated under the paradigm of liquidity risk in order to ensure smooth running of the business (Lupton, 2000). Another type of risk that exists in the urban development environment is inflation risk. In any formal financial setting, inflation often leads to loss of purchasing power. This type of risk is especially common to cash investments (Christopher, 2007). A good practical example of this is a scenario where an urban development project is leased to another firm at a given interest rate. The firm leasing the project does this looking to capitalize on the higher interest rates often offered to real estate projects. Thus on the surface, it may appear as if the firm is making money by simply leasing their urban development real estate project. The actual situation on the ground might be very different. Inflation might lead to loss of purchasing power of the money despite the interest rates. Thus, though increasing in amount, the value of the urban project might be decreasing in terms of its value and by extension its purchasing power (Francis, 2000). An ideal situation is a case whereby the interest rates offered on a given urban real estate investment well outpace the rate of inflation. In this scenario, the value of the project increases both in terms of quantity and quality. This can be described as perhaps the ideal scenario for any urban developer. The problem with this ideal scenario is that it is often theoretical as opposed to a real tangible prospect. Thus, inflation risk is one of the most rampant risks to which most urban developers are exposed to (Christopher, 2007). Reference List Christopher, A. (2007). Risk. New York, Kensington Pub. Crouhy, M., Galai, D., & Mark, R. (2000). Risk management. New York, McGraw Hill. Francis, D. 2000. Risk. New York: Harper & Row. "John Adams." John Adams on the web 2015. http://johnadams.com. Accessed April 17, 2015 Lupton, D. 2012 Risk. London: Routledge. National Audit office. 2011. Managing risk in government. National audit office. Press. Risk Management, 2004, Risk Management. 3rd ed. Sydney, NSW: Standards Australia International Regional development office x. 2011. review of the z project. University Press. Skinns, L. 2011. Risk. Cambridge, UK: Cambridge University Press. National audit office. 2011. Managing risk in government. National audit office, UK. Diez, R. 2015. Developing an urban project:the crossrail case. University Press. Read More