Risk Management at Stockland Property Development - Case Study Example

Executive Summary Stockland Property Development works in the real estate business has looked towards building a new premise and to ensure proper completion of the project with efficiency has looked towards identifying the risk. Stockland Property Development has thereby identified the different stakeholders and assigned them various responsibilities so that the risk can be properly measured and risk mitigation strategy can be developed so that the project can be completed on time. Stockland Property Development has also looked towards finding out different risk and prioritizing them so that a contingency plan and a mechanism which will help to reduce the risk and increase the value of the project can be done. This will help Stockland Property Development to ensure better strategies and deal with the risk has thereby looked towards finding ways so that a contingency plan is developed and the project will be completed on time. Table of Contents Introduction 3 Background Information 3 Risk in Real Estate 4 Risk Management Process 4 Risk Identification 5 Risk Responsibility 6 Risk Assessment 7 Risk Response 8 Risk Mitigation 9 Risk Contingency Plan 10 Conclusion 11 References 12 Introduction Risk and uncertainties are a part and parcel of every business development and the intensity of risk increases in case of real estate projects and more so for complicated projects. Risk in real estate projects are seen from the beginning i.e. from the conceptualization of project to the final handover of the project to the respective clients. This helps to suggest that risk management process is a continuous and iterative process where the risk varies based on projects (Khallafalah, 2002). This complicates the matter as reducing risk and developing risk mitigating strategies are unable to provide the same advantage due to the nature of differences seen in the degree of risk for each project. This paper looks towards presenting a risk management plan for Stockland Property Development where the different risk that the company faces is been evaluated and a strategy through which the stakeholders will be protected is developed. Along with it a risk management plan is being developed which will help to monitor the different risk and look towards finding out a strategy through which Stockland Property Development will be able to reduce risk and improve their business operations. Background Information Stockland Property Development works as a real estate developed in Australia and is involved in various projects across Australia. The company has looked towards developing projects over different part of Australia and has been able to successfully implement the various risk mitigation strategy which has enabled the real estate developed to ensure better projects. Stockland Property Development has different projects in Sydney, Melbourne and other places and has looked towards providing the projects that have been undertaken on time. This has helped in developing a brand name for the company has ensured better opportunities of growth. Stockland Property Development looks forward to increase their business by penetrating into different areas and is looking towards consolidating their business position by investing in different projects all across the country. This will require that Stockland Property Development looks towards identifying proper strategies which will help to reduce the level of risk and help to identify different strategies through which the company is able to gain overall efficiency Risk in Real Estate Real Estate developers have to face different risk which arises due to different reasons and has to look towards finding ways to reduce it. Risk is commonly seen in the real estate business to arise through Social, Technological, and Economical, Environmental, & Political factors also known as STEEP factors. An example in this direction is that risk in real estate could be due to separation of the actual design from construction, improper communication, changing business environment and similar other factors which will have an effect on the manner the business takes it decisions and will have an impact on the working style of Stockland Property Development. Risk Management Process The risk management process that Stockland Property Development has to look should be developed through a process which will look towards managing the risk and developing a plan which will help to reduce it. The risk management process that Stockland Property Development has to thereby follow should include (Booth, Matysiak & Ormerod, 2002) Identification of the risk that Stockland Property Development faces in the real estate business and should be both internal & external to the organization Analyzing the risk and weighing the different risk so that the major risk and strategies to reduce those can be gauged and efficiency developed towards it Develop a risk mitigation plan which will help to reduce the impact of the risk for Stockland Property Development and ensure an opportunity of growth Ensure a risk response which will have a contingency plan and ensure that the level of risk for Stockland Property Development reduces Thus, the different steps in reducing the risk has to be followed by Stockland Property Development which will help the business to be able to develop its business and ensure proper strategy which reduces the level of risk Risk Identification Stockland Property Development has to find out a method through which the risk can be identified. The risk can be found through different ways as during the life of the project, the inherent risk being demonstrated by the project and risk which might arise due to external influence. This all will make it difficult for Stockland Property Development to continue their operations and since the company is looking to set up a new project in a new premise evaluating the risk associated with the project is of prime importance. The risk identification for Stockland Property Development will have to look towards identifying the risk which the business is likely to face and the characteristics of the risk. This will also require that the project manager and the project team are notified about it so that they are ready to deal with the risk that the business might have to face. The manager of Stockland Property Development will look towards notifying the different risk which will arise and the frequency and magnitude through which the business will be affected so that proper risk mitigation plans are developed which will look towards magnifying the effect of the overall process (Adair & Hutchison, 2005). Risk Responsibility The real estate project of Stockland Property Development has different stakeholders who are involved in the process and it is important that they are protected. This will require that Stockland Property Development fixes the risk responsibility on the different heads within the organization so that they are able to work towards it. This will help to develop risk mitigation strategies and will also help to identify the different cost and resources that Stockland Property Development will require to meet the needs of the business. This will thereby look towards passing on the responsibility to the following based on the risk as shown below (Clarke and Varma, 2009) Risk Activity Responsibility Identification of Risk Project Stakeholders Risk Registry Project Manager Risk Assessment Project Stakeholders Risk Statement Project Manager Risk Response Project Stakeholders Contingency Plan Project Manager Risk Response Project Manager Risk Reporting Project Manager The above risk charter helps to understand the different risk and the responsibility for managing the risk lies on whom. This will help to ensure that the concerned person is able to take steps and look towards finding out ways through which the risk can be reduced and better efforts can be managed to ensure effective resource utilization. Risk Assessment Risk assessment probably looks towards finding out the chances for a particular risk to arise and looks towards understanding the cause and effect relationship that exist. The importance of identifying the risk increases in case of real estate business due to the high volume investment and money involved in it. The risk assessment thereby looks into two factors which are probability of the chances of the event to occur and the impact the risk will have on the project. This thereby looks towards both qualitative and quantitative evaluation so that the risk in the project can be identified (Clarke and Varma, 2009). Stockland Property Development to measure the impact of the risk looks towards using a risk register which rates the risk on three parameters i.e. high, medium and low so that comparability of the risk becomes easy. The impact of the risk for each category is thereby as (Blundell, Fairchild & Goodchild, 2005) Cost: Stockland Property Development looks towards gauging the impact of the risk in dollars amount so that the direct impact the project has and especially since the company is looking for a new project can be identified. This helps Stockland Property Development to find out the risk that has a direct impact on the financial risk management of the company and helps to find out the impact on new projects better Scope: Stockland Property Development looks at this risk when the final outcome is not as per preplanned methods which impacts the business and gives rise to scope risk. This risk measures the risk through reduction in flats, towers and infrastructure which Stockland Property Development has to undergo in new projects which are being worked on Schedule: The impact of schedule risk is very high on Stockland Property Development as it results in both a capital loss which leads towards cist increase and also changes the scope of the project. Stockland Property Development looks towards having lead time and also keep some caution time to deal with the schedule delays and has a deep impact on the business potential of the company Quality: Quality is compromised by businesses to ensure that the projects are completed on time and results in using short cut methods and low quality tools which increases the quality risk. Stockland Property Development looks to abstain from such doings and looks towards formulating a plan and policy in such a manner that the risk related to quality is better controlled Stockland Property Development thereby measures the different risk based on this category and looks towards finding out a way through which it will be dealt Risk Response Stockland Property Development looks towards finding out the impact each risk will have on their new and ongoing projects and after ascertaining the impact looks towards finding out a risk mitigation strategy so that based on it the business is able to reduce the impact of the risk. The probability of occurrence of the risk has a role in determining the risk mitigation strategy that Stockland Property Development will adopt for that particular risk. Stockland Property Development looks at the following response (Hendershott & Hendershott, 2002) Avoidance: Stockland Property Development by evaluating the risk finds that the risk is very avoid then looks to completely avoid it by changing the objectives and scope Transference: This results in passing on the risk to others like a third party. This situation only results in the transfer of risk but doesn’t eliminates or reduces it completely Mitigation: These are steps which are taken to reduce the risk and depend on the potential of the business to do so. Stockland Property Development after identifying the risk looks at finding ways to reduce risk by developing actions to help in that direction Acceptance: Stockland Property Development also accepts some risk which has a limited impact and developing risk mitigation strategies for those will be costly than accepting the risk. The risk response thereby helps Stockland Property Development to be able to ensure that the new projects which are being worked on will provide the determined objective and will help to reduce the risk to a large extent Risk Mitigation Stockland Property Development has developed risk mitigation strategy so that proper strategies can be formulated which will help to reduce the impact of risk and will help to improve the overall working condition. Stockland Property Development has thereby looked towards the following (French & French, 2007) Identify the different risk, the provability of the risk and the impact that the risk will have on the final business outcome Developing a contingency plan so that Stockland Property Development has a strategy in place through which risk can be controlled This has helped Stockland Property Development to be able to ensure that the risk are treated in the most relevant manner and the company is able to develop a framework through which the business will be able to gain better efficiency Risk Contingency Plan Contingency plan helps to reduce the level of risk to a large extent and has helped Stockland Property Development to be in a better position to handle the different risk. This has also ensured that Stockland Property Development looks towards finding different ways through which the impact of risk on cost, scope and quality is not compromised. Developing a contingency plan has helped Stockland Property Development to arrange for the required resources before hand i.e. both in terms of human capital and monetary capital. For example, suppose the cost estimated by the business for a particular risk is $100,000 and the chances of occurrence are 50%. This has enabled Stockland Property Development to be able to include in their budget and have additional $50,000 to ensure that the risk is reduced in case of any contingency (Huffman, 2002). Stockland Property Development has thereby been able to deal with this aspect properly and monitoring of the risk has helped them to deal with the gaps and ensure effective development of the business. Conclusion Stockland Property Development has thereby looked towards identifying the different risk that the new projects might face. They have also ensured that the risks are identified and the different stakeholders are identified so that their responsibilities can be assigned. This has helped Stockland Property Development to identify the risk that the business is facing and based on it has been able to develop risk mitigation strategies and contingency plan to ensure that the project is completed on time and the business is able to gain efficiency. This will help Stockland Property Development to control the risk and will thereby ensure successful implementation of the new project. References Adair, A., Hutchison, N. 2005. The reporting of risk in real estate appraisal property risk scoring. Journal of Property Investment and Finance, 23 (3), 254-268 Blundell, G.F., Fairchild, S., Goodchild, R.N. 2005. Managing Portfolio Risk in Real Estate. Journal of Property Research, 22 (2&3), 119-136. Booth, P., Matysiak, G., Ormerod, P. 2002. Risk Measurement & management for real estate portfolios. Investment Property Forum, London. Clarke, J. and Varma, S., 2009. Strategic Risk Management : the New Competitive Edge. Journal of Long Range Planning,, 32 (4), 414 – 424 French, N. & French, S. 2007. Decision theory and real estate investment. Journal of Property Valuation and Investment, 15 (3), 226-232 Hendershott, H., P. and Hendershott, J. R. 2002. On Measuring Real Estate Risk. Real Estate Finance (Euromoney Institutional Investor PLC), 18 (4), 35- 42. Huffman, F.E. 2002. Corporate real estate risk management and assessment. Journal of Corporate Real Estate, 5 (1), 31-41 Read More