“Uncertainty and Feasibility Studies: An Italian Case Study”

Uncertainty affects all aspects of the property market, but one area where the impact of uncertainty is particularly significant is within feasibility analyses. Any development is impacted by differences between market conditions at the conception of the project and the market realities at the time of completion. This paper sets out to address this issue. The feasibility study needs to address the possible outcomes based on an understanding of the current market. This requires the appraiser to forecast the most likely outcome relating to the sale price of the completed development, the construction costs and the timing of both. It also requires the appraiser to understand the impact of finance on the project. This allows the appraiser to address the issues of uncertainty involved and thus provide the decision maker with a better understanding of the risk of development. This technique is then refined using a “two-dimensional technique” to distinguish between “uncertainty” and “variability” and thus create a more robust model.