Customers & Industries: Gemeente Hoorn

Mitigating Risks of Urban Planning with Palisade’s @RISK

  • Industry: Government, Real Estate
  • Product(s): @RISK
  • Application: Urban Planning

Summary

Gemeente Hoorn, city in the Netherlands, uses Palisade’s @RISK to mitigate the financial risk in the development of housing projects across the region.

We model all types of macro economic scenarios. Input varies, we have different indices such as interest and inflation, but also time and price are among the input parameters. With each scenario comes a combination of these parameters. @RISK provides us with the ability to facilitate a rather easy process for a very complex calculation.
Simon Metselaar, Financial Urban Planner, Gemeente Hoorn

Hoorn is a City in the Netherlands that sits around 45km from the country’s capital, Amsterdam. It has a diverse history and was once one of the main economical centres in Holland due to its location on the coast, and was originally the country’s main harbour for trade with the East Indies. However during the last couple of centuries its economic status went into decline. During the 1970s the central government decided that Amsterdam needed overflow in the form of “satellite cities.” As Amsterdam’s population continued to grow, Hoorn became an increasingly viable proposition for those looking to live outside of the bulging capital. With its close proximity to the city, the affordability of cars, and an increasing railway infrastructure, the City of Hoorn was a good alternative for those happy to commute.

The expansion of Hoorn meant that the city itself needed to grow, and outlying agricultural land became a resource for its residential requirements. This ongoing expansion means Gemeente Hoorn (the City of Hoorn) today has land development in its DNA, however more recently it has learned that this development process is not without risks. With the growing popularity of bigger cities and gentrification in recent years, competition has become harder, and it is more difficult to sell land to real estate developers willing to build houses outside of the city.

Managing financial risk in long term projects

Managing and forecasting financial outcomes for investment into new districts within the City has become crucial, as it becomes more complex to manage costs within competitive environments. Simon Metselaar, Financial Urban Planner at Gemeente Hoorn, commented, “When we look at developing any agricultural land into residential housing areas, there are big investments involved. With these investments we also have to deal with financial risks. In order to cope with these risks we have to determine the financial buffers, and that’s where @RISK comes into play – it offers us the ability to determine the buffer we need.”

Transforming agricultural land into residential housing areas is a complex and expensive process for Gemeente Hoorn. The council needs to create the fundamental elements of any new residential area, which includes streets, bridges, parking lots and city lights – everything that comes with designing any new city. The investment can be around 200m Euros, so managing the financial risk is essential.

Metselaar continued, “We have a number of parameters involved to determine the need for financial buffers, which all have an impact on the final outcome. We want to have an insight into the impact of all the parameters in total, and @RISK makes this possible.”

Financial parameters are set within @RISK that allow Gemeente Hoorn to understand the changes to costs that come with development. For example, models that aim to mitigate the risks of cost increases around an economic boom due to price increases by construction firms whose services are in demand. Or the reversal of this in an economic low, when prices are reduced. The length of a project can also see a wide variation in the price of the land that the city is looking to purchase or sell, depending on the economic situation, and this can have quite a large impact on a development project. Increases in prices of just 5-10% can make a large difference in the financial outcomes. As part of the estimations, Gemeente Hoorn allows for pricing going down 20% or up 15%, and this gives them the insight through a Monte Carlo simulation of what the result could be. This allows Gemeente Hoorn the ability to act, either speeding up a project or slowing it down.

Simple process for a complex issue

Metselaar continued, “We model all types of macro economic scenarios. Input varies, we have different indices such as interest and inflation, but also time and price are among the input parameters. With each scenario comes a combination of these parameters. @RISK provides us with the ability to facilitate a rather easy process for a very complex calculation.”

With the use of @RISK, Gemeente Hoorn is able to mitigate the risks associated with these burgeoning projects, offer advice to the council, and allow them to make decisions that will positively impact the community. Metselaar concluded, “@RISK is a simple, Excel-based tool that is instrumental in the work we do.It solves a very complex task quickly, and is core to our work in dealing with the recalculation of our financial buffers on an annual basis."

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