Advancing real estate decision making: understanding known, unknown and unknowable risks

Author:

Higgins DavidORCID,Perera Treshani

Abstract

Purpose Whilst existing literature on real estate risk management focusses almost exclusively on holistic risk management techniques, documented increases in frequency and magnitude of unforeseen, rare and extreme events can throw up sudden, unexpected shocks that can challenge recognised real estate decision-making strategies. The paper aims to discuss this issue. Design/methodology/approach To advance real estate decision-making practice in this area, this research paper takes the skilfully conceptualised downside risk framework presented by Diebold et al. (2010), being the known (K), the unknown (u) and the unknowable (U) risk categories, to provide a blueprint for effective real estate decision making in a changing global environment. Findings In recording categories of risk, managing uncertainty can be achieved by an interrelated approach of adaption, robustness and resilience. This is important part of a real estate manager’s decision-making toolkit as risk recognition and knowledge of KuU event categories can augment an effective management strategy. Originality/value The mastery of modern real estate risk management can be better served by understanding and managing extreme downside risk events. Creating a comprehensive risk management framework can enhance comparative real estate performance whereby unprepared competitors fail in a world increasingly affected by large, highly improbable and unpredictable events.

Publisher

Emerald

Subject

Building and Construction,Civil and Structural Engineering

Reference21 articles.

1. Bardhan, A. and Edelstein, R.H. (2010), “Real estate through the ages: the known, the unknown, and the unknowable”, in Francis, X.D., Neil, A.D. and Richard, J.H. (Eds), The Known, the Unknown, and the Unknowable in Financial Risk Management: Measurement and Theory Advancing Practice, Princeton University Press, Princeton, NJ, pp. 145-163.

2. Bralver, C.N. and Borge, D. (2010), “Managing increased capital markets intensity”, in Diebold, F.X., Doherty, N.A. and Herring, R.J. (Eds), The Known, The Unknown, and The Unknowable in Financial Risk Management: Measurement and Theory Advancing Practice, Princeton University Press, Princeton, NJ, pp. 239-276.

3. The contribution of business and information systems engineering to the early recognition and avoidance of “black swans” in IT projects;Business & Information Systems Engineering,2012

4. Casti, J. (2011), “Four Faces of Tomorrow”, OECD, Laxenburg, available at: www.oecd.org/governance/risk/46890038.pdf (accessed 15 November 2016).

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