@RISK determines financial feasibility of property portfolio acquisitions

London, 15 June 2011; Risk application developer, RisqWorx, is using @RISK software from Palisade (www.palisade.com) to assist property developers with investment decisions.  A key focus making risk analysis accessible in the boardroom in order that informed decisions could be made about property acquisitions. 

The simple sum traditionally used to determine whether to buy a particular property uses the sale price, minus purchase price and renovation / alteration / building costs, to calculate profit.  However, this does not account for variables that could substantially change, and potentially erode, the profit margins.  Building costs might initially be factored in at £200 per square foot but rise to £400 per square foot during the project, thereby weakening the financially feasibility of the purchase. Equally, if the project is not completed within the scheduled time, bank interest on borrowings increases, again affecting overall profitability.

RisqWorx used Palisade’s @RISK risk analysis software to develop a model that allows all the variables associated with property portfolios to be incorporated into the equation.  These include the initial cost of the building, the construction and materials costs, the length of the building project, professional fees, interest rates and the sale price or rental yield (which is affected by the general economic climate and the commercial property market).

The complex calculations are then presented to board members of property companies in easy-to-understand Monte Carlo graphs.  As a result of this due diligence, they are able to make an informed decision about which property purchases will make sound investments for their portfolio.

“@RISK is a highly-prized software.  It allows the user to perform very complex modelling but, at the same time, it is intuitive to use and produces easy-to-understand results,” explains Alan Cartmell, the consultant at RisqWorx who has developed the @RISK model.   “The software is highly flexible and can be applied to any spreadsheet to show the range of outcomes and how likely they are to happen. Organisations can realise value from vast amounts of previously unused data which can now be used as inputs to the @RISK model, the outcomes of which will inform their decision making and drive profits.”