Cold, Wet and Memorable. 7 June 2013.

Cold, Wet and Memorable. 7 June 2013. Killian Court.

My Cambridge stint has been one of the most enriching and memorable chapters of my life. 

Smartness comes in many different ways, just like there are many styles and personalities.

Deep values that will stay with me for a long time to come: Commitment to excellence. Integrity. Meritocracy. Open collaboration. Responsibility to make the world a better place. Generosity. Kindness. Respect. Gratitude. Sympathy. Humility. 

And I will remember President Rafael Reif's charge: (The full commencement speech can be found here)

"... I want you to change the source code. Rewire the circuits. Rearrange the molecules. Reformulate the equation. In short, I want you to hack the world ... until you make the world a little more like MIT. more daring and more passionate. More rigorous, inventive and ambitious. More humble, more respectful, more generous and more kind.... Find your calling! Solve the unsolvable! Shape the future! Take the high road!"

What's Up With The SG Property Market?

In recent times, the SG property market has been a hot topic. What's going on?

In this post, causal loop diagrams are used to capture the essential dynamics of the market. As the word "causal" implies, A causes B if an arrow goes from A to B. The '+' sign means A and B increase or decrease in the same direction, while the '-' sign means A and B change in opposite directions. 

There's a lot to say, but here's my little two-cents. 

An Ideal World

(Credit: Sterman, 2000)

Demand

In an ideal word, an increase in price leads to a decrease in relative value (i.e. it's too expensive). When people think it's too expensive, demand drops and the price falls accordingly in a counteracting manner.

Supply

An increase in price leads to an increase in profits, which in turn leads to an increase in supply that will moderate prices. Like the demand loop, the supply loop balances the price. However, developers take time to build new properties. Due to this delay (i.e. double line on the red arrow), price may increase for a while before stabilizing. 

Why Is Everyone Flocking To The SG Market?

In recent times, interest rates have been extraordinarily low. The low interest rates have increased the buyers' ability to service their loans across the board. With the lower cost of borrowing, buyers also expect higher returns on investment (ROI). The lenders' desire to profit has increased the ease of financing. All these factors depicted in blue have caused demand to surge. I would argue for both locals and foreigners alike. Remember the delay for supply side to catch up. 

Red Hot Property 

A red hot SG property market is the consequence. As more properties are sold, more profits are earned. Developers want to build more properties to reap handsome profits; buyers want to take advantage of low interests to increase their ROI; lenders want to give out more loans to make money; sellers want to sell their properties when the time and price are right. A property bubble (depicted in green) starts to form. 

What If It Goes On Like That?

Just like our Earth's resources are limited, prices cannot grow forever. Buyers, sellers, developers and lenders understand that, but everyone wants to gain something right now. If you purchase a property for S$1M and take up a S$0.8M loan, your monthly payment is about S$2,700 now. If interest rates shoot up to 5%, you pay about S$4,300 per month. What happens next? (depicted in red)

- Some buyers will not be able to service their loans. 

- Increased rates means higher costs of borrowing and lower ROI for buyers, and thus lesser property demand.

- The number of default cases will increase, leading to foreclosures which will gradually increase market supply and decrease prices.

- The lenders' financial health will deteriorate slowly. More often than not, it's usually too late when lenders start to tighten their loan approvals, as evident in previous property meltdowns.

- The dangerous delayed effects of supply and lenders' financial health will eventually cripple the property market and the broader economy if left unchecked. 

Food For Thought

Can we stop people from flocking to the market to take advantage of current circumstances? Can we stop the formation of a property bubble? Without some form of intervention, it's very difficult with the high levels of human ingenuity when everyone tries to outsmart one another. 

Interest rates are hard to change for the time being, and for some time to come. Intervening by adjusting the ROI and the ease of financing seems most logical. Can you think of other ways?

Last but not least, don't focus so much on the immediate gratifications and impacts. Think deeper. Think longer term. Don't overstretch yourself. Interventions today may be good in the long run.

Thanks very much for reading.

Here is an interesting read from The Economist. 

Works Cited

Sterman, J. D. (2000). Business Dynamics: Systems Thinking and Modeling for a Complex World. USA: Irwin McGraw-Hill.

How Broken Is Performance Measurement At Your Firm?

Related Article:

How Will You Measure Your Life?

Most organizations, especially large ones, have too many performance metrics to deal with. Some firms are adding more metrics to their enterprise performance measurement system (EPMS), hoping to improve strategic alignment, better monitor/report business activities, and make proactive decisions.

However, most performance measurement systems are half broken and need improvement. 

This article breaks down the performance measurement system into its players, and value exchanges among the players, before manifesting both in the form of a value flow map. The article concludes with pointers to rethink performance measurement, and suggests why you should care.

Players

Corporate: Senior management who is responsible for making strategic decisions.

Metric user: An employee (e.g. manager) who utilizes the metric for strategic alignment, monitoring and reporting of business activities, as well as decision-making. 

Metric generator: An employee (e.g. engineer) who performs the actual work that generates metric-related data for collection. 

Metric collector: An employee (e.g. manager or appointed personnel) who collects metric-related data. 

Metric processor: An employee (e.g. manager or appointed personnel) who processes metric-related data. 

Information technology (IT): IT group that provides the necessary hardware and software infrastructure to enable metric collection, processing, and interpretation.

Value Exchanges

Strategic intent: Communication of intent and purpose.

Investment: Strategic allocation of resources in terms of time, effort and money.

Work output: Work-in-progress and/or finished products and services.

Information flow: Flow of unprocessed or processed metric-related data. Data processing can be fully automatic (i.e. data entry followed by computer-generated reports), or semi-automatic (i.e. data entry followed by some form of human processing).

Technology: Hardware and software infrastructure that enable metric collection, processing, and interpretation. 

Combining the players and value flows, a typical value flow map consists of three different levels: (1) Corporate level; (2) Program/Project/Department level; and (3) Execution level. 

Food For Thought

- What if the generator, collector and processor happens to be the same person? Will he "game" the system such that he is handsomely rewarded by reporting good metrics? While it makes performance measurement more efficient by employing the same person for generator/collector/processor, the possible unintended consequences must be identified upfront, and mitigating plans/actions must be in place and enforced. Separating generator/collector/processor makes performance measurement more effective, but how many firms are willing to incur the additional costs and effort?

- Do all the players get the right intent and adequate investment? Links between metric user and IT are usually weak, especially when performance measurement is not a revenue-generating activity. Does intent get propagated to all the players? It's probably strongest from corporate to metric user, but much weaker elsewhere. 

- There are two routes for information processing: (1) Automatic processing where data is processed by computers after data entry; and (2) Semi-automatic processing where some form of human processing is required after data entry. Firms are usually better with (1) than (2). How timely are these automatic/semi-automatic reports? Can they help to make proactive decisions? Decision-making is often reactive or at best timely in nature.

- Corporate and metric user get performance feedbacks through performance reports. How fast does this  get to the metric generator (i.e. employee who performs the actual work)? Such delays can be greatly reduced by making performance feedback readily accessible to the execution level. 

Why Should You Care?

If the flows of strategic intent, investment, information and technology can be strengthened, the quality of work output will certainly increase. 

How motivated will you be if you know that some parts of the performance measurement system are dysfunctional? Will it affect your ability to take preventive and/or corrective actions? Does it affect your performance bonus? Does it frustrate you?

How good is the performance measurement system at your firm? 

Thanks very much for reading. 

Work Cited

K.S Teo, "Enterprise Performance Measurement System: Metric Design Framework and Tools," Engineering Systems Division, Massachusetts Institute of Technology, Master Thesis 2013.