The Role of Data in Reducing Risk and Driving Performance

by S2 Partnership Limited     1/4/2019 10:21:33 AM

In the fast-paced, seemingly ever-changing landscape of the real estate industry, in an effort to gain a competitive edge, organizations are continually striving to adopt the latest systems and practices. There is also an increasing focus on embedding environmental, social and governance (ESG) matters at the core of business, to ensure that all development is sustainable. When looking to gain this competitive, and sustainable edge, setting performance targets is an integral tool for helping us achieve this. Performance targets can be implemented across all aspects of business to achieve improvements in the way we manage our economic, social and environmental responsibilities. The use of the SMART concept is typically used throughout academia and industry to ensure targets are Specific, Measurable, Agreed-upon, Realistic, and Time-bound.[1] Of course, being able to set such meaningful targets is largely dependent on the availability of high-quality data to influence desired changes. Being able to store and use data related to risks to and from your business operations can help drive such change. Understanding the reciprocal relationship between risk management and performance targets – such that risk assessment can inform targets and targets can help reduce risk – can help us to best implement policies, procedures, and controls to effectively manage risks and achieve performance targets – ultimately improving resilience. However, where it may be relatively simple to manage risks, and subsequently set performance targets, at the asset level, when we start to look across portfolios and whole organizations, the sheer number of risks can seem like a minefield.

What is risk?

Risk is defined as the effect of uncertainty and can often be expressed as a combination of the impact of an event and the associated likelihood of the event occurring. Risks can either be negative (threats) or positive (opportunities), and to effectively manage risk – to mitigate threats and maximize opportunities – it is necessary to build up an understanding of both how business operations impact the outside world and how the outside world impacts business. The World Economic Forum has categorized risk as economic, societal, environmental, technological or geopolitical [2] – all of which have relevance to the real estate sector. For example, economically, asset price collapse would have obvious direct consequences on the industry. Income disparity is an example of a societal risk that may affect the ability of workers to live in areas that are commutable. Environmental risks, such as extreme weather events and failure of climate change mitigation and adaptation, now dominate the top 5 global risks in terms of both impact and likelihood. Cyber-attacks and data fraud are examples of an increasing technological risk, and even geopolitical tensions can impact businesses. For example, energy prices are largely susceptible to great fluctuations depending on the outcomes of discussions between OPEC (The Organisation of the Petroleum Exporting Countries) members and oil producing nations outside of OPEC [3]. With such a wide variety of risks relevant to the real estate sector, it is very useful to be able to systematically identify (i.e. risk assessment) those with the most relevance to your business.

The use of intelligent risk and data management systems (DMS) can help to alleviate some of the administrative burden of risk and data analysis at the portfolio level – allowing useful targets to be implemented which are appropriate at this level. Let us assume that you have an objective for your portfolio to achieve a 5-star GRESB rating. To help you achieve this you may have set a number of varying SMART targets along the way, so being able to track anything from ISO14001 certification portfolio coverage to the number of building safety assessments undertaken, alongside real-time portfolio risk management is valuable for tracking and achieving target progress, and ultimately achieving that 5-star GRESB rating.

Access to high quality, robust data will also provide better information, helping to instill confidence in data users. Not only can this reduce decision making risk, it can also help to support the setting of objectives and targets. Furthermore, removing the need for lengthy data validation processes can allow users to focus on using data to support decisions; driving productivity. Another competitive benefit of using a robust DMS is that it allows easier identification of improvement opportunities which, once identified and actioned, can lead to an advantage over competitors. For example, if you can track which assets require Air-Conditioning Inspections in the UK [4], you could set-up DMS notifications to ensure that all are completed in compliance with legislation time-frames. The DMS can then be used to track the implementation of system recommendations, which would allow for potentially greater energy reductions than those achieved by competitors not operating a DMS.

Being able to identify where risks exist within portfolios is crucial to effectively implement any necessary corrective action. Furthermore, being able to analyze across various asset types (e.g. from retail and business parks to large commercial office spaces) will allow common themes to be identified all in one place; allowing for strategic portfolio target setting which can be made relevant to an asset type. For example, asset energy consumption at a large commercial office building – where centralized chiller plant and extensive lighting may contribute to high energy usage – is likely to be a greater risk when compared to energy use at a retail park – where the asset only uses energy for CCTV and some external lighting. Hence, it would be more beneficial to focus efforts on reducing the energy consumption at the large commercial office building than at the retail park. Being able to set targets (and subsequently monitor them) that are directly relevant to the asset class, is an extremely valuable tool for achieving the desired outcomes. Additionally, benchmarking asset target progress (particularly across the same asset class) and making this visible to the relevant stakeholders, can help to create healthy competition amongst asset teams and can even be used as a forum to promote and share best practice initiatives.

As a GRESB Premier Partner, the S2 Partnership is perfectly placed to provide environmental support to clients. The S2 Partnership has a team of qualified environmental consultants, who specialize in helping organizations manage environmental priorities effectively.  The S2 Partnership has held ISO 14001 for its own operations since 2007 and is also proud to be a GRESB Premier Partner, highlighting its commitment to helping clients to improve ESG performance across the sector.

The S2 Partnership works with clients worldwide, implementing RiskWise and providing environmental consultancy, to assist organizations with portfolio risk management to help meet GRESB objectives, and drive continued ESG performance improvements.

[1] S. L. Maxwell, E. J. Milner-Gulland, J. P. G. Jones, A. T. Knight, N. Bunnefeld, A. Nuno, P. Bal, S. Earle, J. E. M. Watson, J. R. Rhodes. Being smart about SMART environmental targets. Science [online]. 2015; 347(6226): 1075-1076. [Accessed 6 December 2018]. Available from: http://science.sciencemag.org/content/347/6226/1075/tab-pdf.

[2] World Economic Forum. The Global Risks Report 2018: 13th Edition. [online]. 2018 [Accessed 5 December 2018]. Available from: http://www3.weforum.org/docs/WEF_GRR18_Report.pdf.

[3] Blas, J. Mazneva, E. Smith, G. OPEC Agrees on Larger-Than-Expected Cut After Marathon Talks. [online]. Bloomberg; 2018 December 7 [Accessed 7 December 2018]. Available from https://www.bloomberg.com/news/articles/2018-12-07/opec-said-to-agree-larger-than-expected-output-cut-with-allies

[4] Ministry of Housing, Communities & Local Government. Air-conditioning inspections for buildings. [online]. 2012 [Accessed 19 December 2018]. Available from https://www.gov.uk/government/publications/air-conditioning-inspections-for-buildings.