Ebook: Risk And Uncertainty

In these matters the only certainty is that nothing is certain (Pliny the Elder, AD 23-79).This issue is a themed issue looking at “Uncertainty and risk in real estate”.Uncertainty is an integral part of real estate investment, valuation and development.The papers in this issue concentrates on the practical impact of uncertainty in realestate. The sources of uncertainty are rational and can be identified. Each paper, in adifferent way describes how risk and uncertainty can be addressed in a practicalmanner. The terms risk and uncertainty are often used interchangeably. Risk is seen as aeuphemism for uncertainty. However, this colloquial use of the words is unhelpful inidentifying the principal issues involved. It is important to define these words moreprecisely. Uncertainty is anything that is not known about the outcome of a venture atthe time when the decision is made, whereas risk is the measurement of a lossidentified as a possible outcome of the decision. It is generally agreed that uncertainty is due to the lack of knowledge and poor orimperfect information about all the inputs that can be used in the analysis. If we areunable to confirm the veracity of the inputs then the resulting outcomes is uncertain.However, if we are able to assign a probability to the input variables it will allow us todetermine the range of possible outcomes. The output is therefore a measure of risk.This issue of the Journal of Property Investment & Finance presents three academicpapers and a Practice Briefing on the same theme. The first paper by Adair, Hutchison,Burgess and Roulac, “The appraisal of urban regeneration land: a contemporaryperspective for allowing for uncertainty” looks at the way in which uncertainty can beaddressed in the regeneration process. The second paper, by Lee and Stevenson, looksat risk in the context of real estate portfolio construction, whereas the final paper, byAdair and Hutchison, considers risk assessment in valuation by a risk scoring system.The Practice Briefing is a survey of valuation practice and questions the way inwhich uncertainty is expressed in valuations. In each case, the papers are adding to anextensive literature on the subject. Uncertainty and risk are always present in realestate investment and valuation, the question is how can this be measured, managedand expressed? We hope that this issue is a small step to a better understanding of theuncertainty and risk in the decision making process. Nick French Previously published in: ASLIB Proceedings, Volume: 23, Number 3, 2005