**1. Introduction**

356 Risk Management – Current Issues and Challenges

[14] Tapking J. (2007) - Pricing of Settlement Link Services and Mergers of Central Securities Depositories, European Central Bank, Working Paper Series No. 710, Frankfurt.

> Life is full of risks for example risk is involved in simple things like turning on the gas at home or when dealing with life threatening medical emergency decisions. Risk plays an important role in the way we manage our economy, organization or our family. Risk can be rather complex when household money is involved; such as for individuals or families – for example, mums and dads stand to either gain or lose large sums of money. The types of risks involved influence decisions on how to manage or invest money in shares, bonds or property. When faced with risks, the challenge is how well prepared are we to overcome risks. Risk awareness may be limited in which case there is a high likelihood of risk turning into hazard -leading to disastrous outcomes. Successful businesses make constant efforts to change or update their in house administrative polices and frameworks to allow for possible risks in their business requirements. Some decisions that are likely to have been factored into the component of risk are: rigid corporate governance requirement, human resource planning, succession planning, training and development, merger and acquisitions, adapting to different cultures, foregoing or discontinuing some existing products, outsourcing, new market development etc. No matter how important a decision is made, strategic alignment is critical in business decision making. New ideas should be implemented according to the business needs a company. The introducing of novel ideas should involve all personnel particularly during the decision making processes of development and setting of targets. A well-managed business is also well prepared one and thus able to confront challenges of the modern dynamic business environments.

> Yet managing risk is rather challenging for the world is mostly unpredictable. The processes are continuously changing and evolving in terms of resources that are available -

© 2012 Tularam and Attili, licensee InTech. This is an open access chapter distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2012 Tularam and Attili, licensee InTech. This is a paper distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

technology, innovation, human resources and time to name a few. In order to adequately address an impending risk, it is important to gather as much factual information as possible for analysis to help manage and thus minimize risk.

Importance of Risk Analysis and Management –The Case of Australian Real Estate Market 359

with the rest of the world and summaries investor risks and rewards in Australian real

In the international context, the ISO 31000/ISO Guide 73: 2009 [2] defines risk as the "effect of uncertainty on objectives" (p. 1). When there is a lack of knowledge or exposure to a certain event then such a situation can be termed uncertain. Taking decision on an uncertain event or situation may or may not be successful, which is what risk is about. Many definitions of risk exist in common usage [3-4]; however the ISO definition of risk was developed by an international committee representing over 30 countries and is based on the

Risk is defined in Australia by the Australia/New Zealand standard for risk management [2] as "the possibility of something happening that impacts on your objectives. It is the chance to either make a gain or a loss. It is measured in terms of likelihood and consequence…" (p. 2). Risk can also be defined as the uncertainty of future events that might influence the achievement of one or more objectives such as an organization's strategic, operational and financial objectives [3]. Risk management may produce positive opportunities for developers although the negative aspects of risk are usually the once that are emphasized

Likelihood of risk occurring varies from industry to industry and how complex a job maybe. Some areas where there is a high chance of risk are construction, transport, mining, health

Risk can be broadly understood and explained in three different scenarios [5]: risk versus probability; risk versus threat; and all outcomes versus negative outcomes. It is believed that any risk can be managed through the engagement of a proper risk management

There seems to be an increasing demand of organizations to meet and exceed the financial expectations of shareholders. In the pursuit of growth, many organizations (for example: Toyota) have adapted and responded to expectations of the shareholders by becoming lean and efficient. It is always easy to think that risks and their potential consequences could have been predicted and managed. This is clearly not true when it comes to success in a business. Business success usually requires some acceptance of risk and, as such any risky

In large organizations and corporations there are designated personnel; namely, risk managers. Hillson [6] argued that risk is mostly managed "continuously, both consciously an unconsciously, though rarely systematically" (p. 240). Risk manager's main role is to be

care, sports, finance and banking, insurance and superannuation.

estate market.

[4].

process.

**1.2. Risk management** 

strategy undertaken may lead to a failure.

**1.1. Definition of risk** 

input of several thousand subject matter experts.

Risk can be classified into both voluntary and involuntary [1]. This classification depends on how an individual or an organization judges the situation. For example, a person with a habit of smoking or drinking fails to associate the habits as involving risks; yet often the habit becomes hazardous and they can significantly affect a person's quality life. Involuntary risk places a person or the organization in a state of ambiguity, where the people involved in the decision making process have not been exposed to a particular circumstance or they lack knowledge and awareness of the particular risk situation. The ability to deal with such risks is a crucial factor in determining successful outcomes irrespective of the stature of an individual or an organization.

For some individuals, the ability to deal with risk appears to be built in their character but for the rest of us it seems, it is knowledge that can be acquired through training. In order to gain the skill set required so that one to deal with risk, it is important to step out of one's comfort zone and be willing to change, learn, develop new skills, or be challenged to manage risk. Risk management is a methodical approach that could be taught and learnt by most. The general process and steps involved is presented in Figure 1.

Source: Adapted from ISO Guide 73

**Figure 1.** The process of risk management

This paper is organized in the following manner: In the next few sections risk is defined and risk management explored focusing on types of risks associated with real estate market. The Australian real estate market is then reviewed and possible risks involved are explored in some depth particularly in terms the global financial crisis. The paper compares the market with the rest of the world and summaries investor risks and rewards in Australian real estate market.
