Koloon Case Study

Topics: Decision theory, Decision tree, Risk Pages: 5 (1421 words) Published: January 20, 2012
Abstract
This case study examines the decision making process of the Kowloon Development Company to the PrecisionTree decision tree software from Palisade. The Kowloon Development Company was faced with a major decision about their future investments. The General Manager of the Kowloon Development Company is usually involved in billion dollar investments, accurate decisions are needed. The company has to make a decision over the decision to purchase a new development project the total site area being 16,000 square feet. The objective is to use the use the Decision Tree software from Palisade, to determine the decision for the Kowloon Development Company whether or not to purchase the property. Decision trees provide a formal structure in which decisions and chance events are linked in sequence from left to right the general manager of the Kowloon Development company must decide whether to recommend the purchase of the 350 million dollar property and what would be the rate of return of the investment. He also needed to know whether or not the property would be best served developed or left undeveloped. He knows that if he doesn’t make a decision the board of directors would invest the money for two years at six percent. After performing the test using the PrecisionTree software the correct decision should be to invest 350 million. The only way to guarantee the highest rate from the investment would be 420 million, and if the Kowloon Development Company decided to purchase the property they would only receive a maximum rate of return 394 million for a developed piece of land.

Property Investment Decision
Introduction
Kowloon Development Company is an investment company, involved in the investment, development, and management of properties. (BusinessWeek) The company develops and sells residential, commercial, and large office buildings in Hong Kong. It also provides property management services for the projects developed by the company, luxury residential and serviced apartments, and commercial buildings and public housing estates. The company also involves in the property development, investment holding, property management and security services, financial services, retail, construction, film distribution, provision of consultancy services, property trading and investment.(BusinessWeek) As of December 31, 2008, its investment properties comprised primarily retail shops and offices, covering approximately 75,000 square meters of gross floor area; and managed properties covered a gross floor area of approximately 560,100 square meters. (BusinessWeek) In 1998, the Kowloon Development Company was faced with a major decision about their future investments. The General Manager of the Kowloon Development Company is usually involved in billion dollar investments, accurate decisions are needed.

Statement of problem
The company is quarreled over the decision to purchase a new development project the total site area being 16,000 square feet. The general manager of the Kowloon Development company must decide whether to recommend the purchase of the 350 million dollar property and what would be the rate of return of the investment. He also needed to know whether or not the property would be best served developed or left undeveloped. He knows that if he doesn’t make a decision the board of directors would invest the money for two years at six percent. Determining Risk

A structural change in the property market is anticipated as a result of a vastly growing pension fund industry in China, and as there is a renewed interest in Hong Kong and China properties from foreign funds since early 1998. Both domestic and foreign funds will need to find investment opportunities in real property. Foreign funds look at real estate as a long-term investment. They adopt serious and professional approaches in selecting projects, and they want to associate themselves with professional, reliable and respectable consulting firms....

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