Property Development Risk Profile In A Selected Project Using @Risk Software Package and Pertmaster Software (A Case Study)

Abstract

The aim of risk analysis is to anticipate and minimize the risk impacts and/or to reduce the likelihood of its occurrence. This study has undertaken risk analysis on Redevelopment of AMP Square Project, located at 535 Bourke Street Melbourne using three types of software: Microsoft Excel 2000 the @Risk software package version 3.5.2 and Pertmaster software version 7.5. Excel and the @Risk software use costs as the parameter, whereas Pertmaster software uses time or duration as the main parameter. The development plan is to demolish the 51. St James Building and the 24storey AMP Tower and then to construct a 50-storey new AMP Tower. The details of the redevelopment plan and the financial feasibility analysis using Excel are provided in Appendices I and 2. When undertaking risk analysis using Excel, the researcher made certain assumptions, which are listed in pp.21 and 22. The results produced a single best estimate of NPV and IRR, which show a loss and a very low IRK These results explained that under the 2002 economic condition in Australia, the revenues for the tower could not cover all the planning and development costs, indicating that the project is not financially viable. To enable undertaking of risk analysis using @Risk software package, the researcher collected the historical data of selected variables such as the interest rate, occupancy rate and the revenues for premium offices around Melbourne CBD area. The @Risk software quantified the uncertainties in each variable by describing the range of values that a variable could take using the historical data, and performed a probability distribution. Consideration of the historical data in this scenario confirmed the non-viability of this project, as predicted by an analysis of this project proposal previously. Furthermore, by running risk analysis using Pertmaster software, it was established that a month-delay in Basement Level 1-5 task affects the project more adversely in delaying the finishing date than a month-delay in External Works (the last task). Then, when the two delay scenarios were used as input in two simulations in @Risk software to observe the impact on costs, apparently related to the interest rate, the one month-delay in the External Works task caused greater increases in Total Development Cost (TDC) and the losses (negative NPV) for the project. However. In relation to the premium office revenue variable, the one month-delay in external.