THE CONSULTANT’S ROLE IN

DECISION MAKING
 THE CONSULTANT’S ROLE IN DECISION MAKING
The unique role of the real estate consultant, unlike others
who serve the real estate market incidental to a main service
(such as brokerage or appraisal), actually enters into the client’s
decision-making situation where the client objectives and criteria
are applied (altered, modified or restated) and a decision is made.
The consultant simulates the decision-making process for the
client, the client reacts to the plan with possible modification of
original objectives and criteria, and finally decides, with
continuing guidance and advice from the consultant. The
consultant’s significant service objective is to ensure that the
client’s problem in terms of objectives is clearly defined and
alternative strategies or solutions are suggested and analysed and
a course of action is selected.
 THE CONSULTANT’S ROLE IN DECISION MAKING
The consultant is both a specialist and a generalist as he
brings his own special expertise to the client’s decision-making
process and recognizes the potential need for capabilities beyond
his own in acting on or implementing a decision on professionals
for particular specialties that pertain to the questions at hand.
Such professionals might include lawyers, accountants, architects,
engineers, economists, leasing agents, brokers, appraisers,
financial analysts, or others whose knowledge is pertinent and
beyond the consultants own expertise in any of these disciplines.
It is the consultant’s responsibility to use any of these specialists
to coordinate their collective efforts on behalf of the client and to
interpret the contribution of each specialist to the client’s
decision-making process and to the implementation of a decision.
 THE CONSULTANT’S ROLE IN DECISION MAKING
The consultant’s area of expertise may be limited to
some real estate expertise in the general areas of marketing,
management, or finance. The consultant who is highly
specialized in a single area may require the services of other
consultants with other real estate-oriented skills. With the
advances in decision theory, consultants may find the need
for modest retooling in their particular specialty, as well as
others, to be able to understand and interpret for the client
the analysis of others and their input to the decision-making
process of the client.
PRELIMINARY ANALYSIS OF
CLIENT PROBLEMS (NEEDS
AND OBJECTIVES)
PRELIMINARY ANALYSIS OF CLIENT PROBLEMS (NEEDS
AND OBJECTIVES)
A problem may be defined as a situation in which something
has gone wrong without explanation. This definition provides a
distinction between problem solving and decision making.
Problems are historical in nature, and problem solving involves
finding the cause of a deviation from a normal situation. As such,
a problem in the strict sense of the word may not actually exist, as
the client’s “difficulty” may be one of making a decision from
among alternative courses of action (such as selecting from
among alternative investment opportunities or making a decision
to buy, sell, lease, etc). The consultant’s role, therefore, is more
often that of aiding the client in decision making rather than
problem solving
PRELIMINARY ANALYSIS OF CLIENT PROBLEMS (NEEDS
AND OBJECTIVES)
Thus, it is important for the consultant to make this
distinction between problem solving and decision making at the
outset in order to serve the client’s needs best. Historically,
emphasis has been placed on identifying and solving “problems”
for clients when the ultimate need to make a decision has been
the main issue. Emphasis should be placed more on decision-
making and on decision-making tools. Client “problems” are not
problems at all. It is the client objectives and their articulation,
refinement, and ordering that are central to the consultant’s role
and represent the foundation upon which the analysis of the
alternative courses of action and ultimate decisions are based
 IDENTIFICATION AND
STATEMENT OF OBJECTIVES
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
The most critical step to the client’s decision-making
process is to identify precisely the client’s goals or objectives
to avoid the vague notion of objectives in his investment
decisions, such as conflicting objectives that require
articulation and resolution prior to the formation of a decision
process or the analysis of that process. This information is
acquired in the initial information-gathering interview with
the client. The goals or objectives elicited from interview with
client may require either broadening or narrowing,
refinement or restatement in a more precise manner that
may require prioritizing their relative importance to the client
as well as to minimize or eliminate conflict.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
Statement of client objectives The ability of the client to explain
his objectives in precise terms may be so limited that the consultant must
add precision to client’s statements regarding his goals. For example,
investment objectives may be stated in the form of cash flow or yield and
cash flow return objectives may be in the form of rates or pesos. The
consultant provides the desired precision by separating the concepts and
applying specific pesos and/or percentage terms of each. The consultant
has an obligation to resolve any conflicts that result from more precise
statements of client goals. For example, the client may state that cash
flow is relatively unimportant but that a high yield is required. That
statement implies staying power, a possible need for tax shelter, and an
emphasis on capital gain. These objectives need to be restated by the
consultant as precisely as possible and reviewed, possibly revised, by the
client before alternative courses of action may be considered.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
Nature of investment objectives There are two categories of client
objectives about his investment position. Pride of ownership, specific
location, design, accessibility and Fung Sui conformance are criteria that
are easily described but are non-quantifiable. The impact of such non-
quantifiable objectives may influence the level of cash flow or return, but
this is a consideration the consultant must decide on. The quantifiable
and measurable features of client objectives are usually less clear but
which can be specifically qualified and analyzed by the consultant. These
objectives include levels of cash flow in either peso amounts or rates,
level of investment by the client, capital recovery, tax shelter, leverage,
profitability versus liquidity requirements, and risk versus return. These
more measurable objectives need to be defined and discussed with the
client before the consultant can proceed with the decision plan, utilizing
these objectives as criteria against which alternative courses of action
may be evaluated.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
Alternative course of action Alternative courses of action or
strategies are drawn from client objectives involving identification of
needed data and tools of analysis and decision making that might be
applicable, resources to carry implement the engagement and
identification of the time and money constraints imposed on the entire
process. In hypothesizing alternative strategies or courses of action,
the consultant sets the work plan for establishing desirable action and
implementing the decision. Based on the consultant’s knowledge,
experience, and judgment as well as the agreed objectives of the
client, the decision may range from no action at all to a complete
change of the client’s investment position. All these steps are
described in the Consulting Process.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
STEPS IN REAL ESTATE DECISION MAKING The decision making
process in real estate consists of a series of steps that gather real
estate data and information, analyze the information, and then
arrive at a decision based on the analysis. The formal procedure is
called the scientific method involving the following series of steps:

1. Clearly identify and define the problem or purpose of

the investigation. This step is critical, for unless a real estate
investor knows exactly what he is attempting to decide, the
investor will not acquire the information needed to make a sound
decision. One clearly defined purpose might be to decide if now is
the time to purchase a particular real estate property, say
Property X.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
STEPS IN REAL ESTATE DECISION MAKING The decision making
process in real estate consists of a series of steps that gather real
estate data and information, analyze the information, and then
arrive at a decision based on the analysis. The formal procedure is
called the scientific method involving the following series of steps:

2. Collect relevant date. With the problem or purpose

clearly defined, the investor then gathers information that would
be useful in arriving at a decision it is equally important to avoid
material that is extraneous and irrelevant to the problem at hand.
An investor would attempt to gather as much economic, social,
physical and political data relevant to Property X as time and
money allow.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
STEPS IN REAL ESTATE DECISION MAKING The decision making
process in real estate consists of a series of steps that gather real
estate data and information, analyze the information, and then
arrive at a decision based on the analysis. The formal procedure is
called the scientific method involving the following series of steps:

3. Analyze the data collected. With the problem clearly

defined and the relevant data collected, an investor must the
correlate, classify, and analyze the data and arrive a preliminary
decision – often called a hypothesis. After analyzing the
information, an investor may tentatively decide that Property X is
the right property and that now is the time to buy.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
STEPS IN REAL ESTATE DECISION MAKING The decision making process
in real estate consists of a series of steps that gather real estate data
and information, analyze the information, and then arrive at a decision
based on the analysis. The formal procedure is called the scientific
method involving the following series of steps:

4. Formulate and test the tentative decisions (hypothesis). At

this point in most scientific investigations, experiments are conducted
to see if the tentative decision or hypothesis is correct. For real estate,
it is difficult to experiment without having to make firm commitment in
advance. In other words, few sellers let an investor try the property
before buying to see if the property produces the desired results.
Frequently. The only testing available is to determine how other similar
parcel with similar owners is doing in the marketplace.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES
STEPS IN REAL ESTATE DECISION MAKING The decision making process in
real estate consists of a series of steps that gather real estate data and
information, analyze the information, and then arrive at a decision based
on the analysis. The formal procedure is called the scientific method
involving the following series of steps:

5. Arrive at a final decision or conclusion. Taking into

consideration steps 1, 2, 3 and 4, the investor now makes a final decision
by either accepting or rejecting the tentative decision (hypothesis). If an
investor decides to accept the tentative decision, say to buy a property
now, it should be recognized that there is a possibility that the investor is
making a mistake. In other words, there is chance that this is not the time
to buy. So an investor should then estimate the probability of being
wrong and decide if he is willing to take the risk. If it is decided that the
property is an acceptable risk, the purchase takes place.
 IDENTIFICATION AND STATEMENT OF OBJECTIVES

The scientific method is the rational way to

approach real estate decisions. Unfortunately, too
many people make real estate decisions based on
emotions. The role of the real estate consultant is to
bring rational behavior to a very emotional business.
Below is the diagram of the steps in the scientific
method.
 STEPS IN THE REAL ESTATE
DECISION MAKING PROCESS
(A Supplement to the Real Estate
Consulting Process)
I. Preliminary Statement of Objectives
A. Investment-return analysis (ratios and
relationship)

1. Sophisticated projections and

historical figures analysis
2. Less sophisticated on-the-
spot decision analysis (by hunch, intuition,
3. Judgment and logic of the
consultant’s long experience and continuing
II. Refinement and Directing of Objectives
A. Express complex relationship in
simple statements
B. Simplify large data sets into more
comprehensible proportions for mathematical
analysis (modeling)
C. Verify and validate the on-the-
spot judgment (of the consultant or client)
III. Identification and Analysis of Alternative Courses of Action
A. Decision-Making Tools
1. Statistical Decision Tools (to identify and explain variability in
data sets)
a. Collation, classification and interpretation of data
b. Decision on the basis of the analysis
c. Identify the limitations and applications of the
statistical measures that evolve from statistical analysis
(that may fall short, particularly in real estate decision
making) such as:
1) measures of central tendency
2) measures of dispersion
3) statistical inference and prediction
4) regression and correlation analysis
2. Financial Decision Tools (to provide the basis for achieving a balance
investment risk and investment return and between profitability and
liquidity, and for making selections from among investment
opportunities); Recognize the valid criticism and problems on the various
tools for either simplicity or complexity, inconsistencies in ranking
investment alternatives, for wide-ranging investment return calculations,
for differences in the timing and direction of cash flows, and the like.
Distinguish ratio models vs. yield models.

a. Profitability measures, to recover capital and achieve return on

capital
1) Net present value model (Decision rule: highest net present
value)
2) Profitability index model (Rule: highest positive index)-IRR,
AIRR, MIRR, FMRR.
b. Liquidity measures (Rule: shortest period to recover investment from
3. Operations Research (an analysis of the efficiency of operations of
one or more investment vehicles to better ensure the long-term
investment potential of the investment in achieving explicit goals
precisely expressed by the client) include the following:
a. Linear programming, to determine the best allocation of scarce
resources (planning by mathematical techniques)
b. Monte Carlo simulation, to enable the client or consultant to analyze
by computer simulation various combinations of the risk and return
and make more profitable decisions over the long term.
c. Bayesian analysis, a form of statistical analysis where subjective
probabilities (referred to as prior probabilities) are assigned to the
occurrence of some real-world phenomena.
d. Game theory (regardless of model) forces the participants to make a
series of interrelated goals-oriented decision regarding the
disposition and development of aspects abstracted from real-world
IV. Development of Decision Models/
Statement/ Plan

V. Selection of Course of Action that:

A. Best fits objectives
B. Minimizes conflicts
C. Can be implemented within
the time and money constraints imposed