RESOURCE MANAGEMENT
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Is the business model sustainable ? Yes , an HOA is a business , if you have not realised this , you need to , and soon .
•• What is the development ’ s competitive advantage ?
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Can the development continue to invest money in a volatile environment ?
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Under what macro and micro conditions would the development survive / cease to be a liquid going concern ?
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What impact does the development have from a systemic viewpoint on the society and the economic requirements of those invested in it ?
However , a lot of this new focus and future regulation is still bedding in , some is yet to start , and often it is experimental , overly bureaucratic and subject to the law of unintended consequences .
The worry is that the new post-residential crash environment may encourage box-ticking compliance only , as well as the generation of millions of pages of documentation and reports from even more powerful computing technologies , which don ’ t positively impact the bottom line , or even integrate with an HOA ’ s wider operational stack or risk . A million in the bank when the second reservoir , new security upgrade or offices should already have been built is just as dangerous .
Each wave of regulation has a direct , quantifiable impact on the target operating model , profitability , and provisions feeding into the levy base of an HOA , but it also has an indirect but material impact on a wide range of factors contributing to shareholder value and ultimately the cost-to-pocket cost for living in these developments . If the industry does not ensure a balance is found , it can face the very real risk that the cost starts to outweigh the benefits .
Some key take-aways
The financial crisis exposed HOAs and the developers in the past , often leaving an HOA with major assets that were not previously included in its operational cost and for which no capital reserve is in place . Regulators will in future require an HOA to investigate possible unanticipated risks and to find business models to adequately address them .
In hindsight , many managers and supervisory authorities now realise that the manner in which risk was analysed and quantified can result in the wreckage of their reputation , prompted by business models collapsing and moral hazard to society as a whole . and risk could not be aggregated and analysed on demand . The board decisions did not fully take into account the likely impact or outcome of a decision at each level . They were based on current portfolio trends in a benign environment , or even ‘ gut feel ’ or social pressure from the community they represented at that moment in time .
All decisions have trade-offs and there are usually many choices for making a similar level of lifestyle advance – some needing more or less capital . Roll all these options up and one can turn the board question around – instead of “ How can we reduce capital needs by Rxxx million ?” it becomes “ What combination of changes in capital allocation will optimise reserve contributions for the very lifestyle upgrades invested into , also subject to the regulatory constraints and risk appetite limits of their unique development ?”
I strongly believe that :
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As long as capital remains scarce , capital adequacy and capital management will top the strategic agenda and propel the adoption of technology optimisation programs and capital-focused business models in the future .
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The adoption of decision optimisation tools is key to survival in economically hard and volatile times , as developments are forced to remain more conservative about their strategy , and focus on maintaining high liquidity and solvency ratios while still remaining relevant in a fast evolving world , focused on lifestyle versus bank balance and ‘ me now ’ versus ‘ the future me ’.
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Surviving the perfect regulatory storm rests heavily on creating agile structures that enable an HOA to quantify risks in a much swifter manner , and to deal with impending crises at an early stage .
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A prerequisite is the access to and aggregation of the data needed for business decisions , regulatory reporting as well as stress testing . Governance is not a word or a paper trail ; it ’ s a robust system to second-guess every decision made .
Therefore the vision and project objectives need to take into account all these factors . The strategic direction must also be set for the implementation and optimising impacts across the long-term HOA social and lifestyle needs – all of this without exploiting future investors or leaving a development open for future crises .
Francois Schoeman
It is also apparent that the executive boards were essentially blindsided as risk data wasn ’ t actionable
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