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Describe the GE Real Estate's business goals and their general processes/operations. Did CEO satisfy with the business situation? Identify the needs that GE Real Estate improves its business performance and expansion. Analyze the requirements for decision making in the corresponding business management. Describe the business operations and information that need to be supported by computerized systems.
GE real estate is one of the business unit of GE commercial finance, and one of the leading sources of innovative real estate capital solutions. GE real estate is one of the fastest growing real estate enterprises.
The GE real estate of the commercial finance earned more than 1 billion of its 7,500 properties generating returns of more than 25% in the past 12 years.
The real estate now accounts for more than 8% of the GE commercial finance's net income.
GE's CEO Jeffery R. Immelt's goal is eventually getting 60% of conglomerate revenue from emerging markets. The main targeted growth strategy is to focus on value creation and cost and opportunistic buys, e.g.; corporate outsourcing by this the expertise of GE real estate would help them unlock the under-valued real estate.
GE finds itself in a very different market. Increasingly, private-equity people, life insurers, foreign investors and everyone wanting to diversify their portfolios and expect returns in high yielding real estate started investing in GE real estates.
GE Real Estate's performance is attributed to the three pronged growth strategy that Pralle implemented: "manage the business through real estate cycles; establish a deeper presence in large, underserved countries, including Mexico and in Eastern Europe; and GE Real Estate's in emerging markets, particularly India and China." (http://dssresources.com/cases/gerealestate/index.html)
OPERATION/PEROCESSES OF GE REAL ESTATE:
The major business processes of GE real estate include the following:
Buy, hold, sell real estate as single asset and portfolio to multifamily, residential, office, industrial asset across the world
Finance purchase of real estate by third parties in multiple asset classes.
Help borrowers who are trying to re capitalize their portfolio.
Restructure existing finance through additional lending.
Unlock the undervalued real estate.
NEEDS OF GE REAL ESTATE:
The basic needs of the GE real estate is that they needed to be fast, efficient, accurate way to track the performance of the properties they were financing.
This process included the better insight into the corporate health of the borrower's individual business tenants.
Analyzing the similar deals, local economic conditions, and macro economic conditions proves to be equally important for GE real estates.
They should also analyze and understand the likelihood of profitability of the investment so that they can better understand the optimal terms and condition for each proposed loan tenants.( www.dssresources.com/cases/gerealestate)
REQUIREMENTS FOR DECISION MAKING:
The need for a decision arises in business because the managing or the deciding authority faces a problem and alternative courses of action are available. In deciding which option to choose he will need all the information which is relevant to his decision; and he must have some criterion on the basis of which he can choose the best alternative.
A quantitative decision problem involves six parts:
An objective that can be quantified: Sometimes referred to as 'choice criterion' or 'objective function', e.g. maximization of profit or minimization of total costs.
Constraints: Many decision problems have one or more constraints, e.g. availability of resources etc., It is therefore common to find an objective that will maximize profits subject to defined constraints.
A range of alternative courses of action: under consideration. For example, in order to minimize costs of a manufacturing operation, the available alternatives may be:
I) to continue manufacturing as at present
ii) to change the manufacturing method
iii) to sub-contract the work to a third party
Forecasting of the incremental costs and benefits of each alternative course of action.
Application of the decision criteria or objective function, e.g. the calculation of expected profit or contribution, and the ranking of alternatives.
Choice of preferred alternatives.
Rational decision-making is frequently inadequate when dealing with strategic issues, both because the number of relevant variables is so great, and because those variables in today's business environment are often ill-defined and difficult to quantify. This will leave business leaders with no choice but to supplement rational decision-making with intuitive decision making (By Tom Karp Ph.D. Candidate at Rushmore University)
GE Real Estate with a DSS
Describe the characteristics and capabilities of the DSS offered to GE Real Estate and the benefits brought to the company. Identify the type of the DSS for GE Real Estate. Identify the 3 levels of decision problems that the DSS could support for the GE Real Estate.
The main characteristics of decision support systems in GE real estate is
It supports the decision maker in all the phases of the decision making
The decision support system had been the main strategy enabler according to Pralle which made the GE real estate one of the world's largest and most diversified real estate commercial firm.
The strategy is made to work by expanding the use of world wide web and improved computerized transaction
The technology of decision support system used to improve the service quality.
This technology has reduced the transaction cycle time by 65 percent and improved the accuracy and reliability of the GE real estate.
GE real estate also uses the decision support systems to improve the risk management practices, which is a critical competitive advantage as the real estate business expands into the markets by various characteristics.
It helps to assess profitability of a proposed loan.
Property management uses this technology to identify opportunities and risk of the existing loan.
The type of decision support system for GE real estate is
GE real estate requires group decision support systems because there are a lot of employees who is in need of the decision support system.
The primary users of DSS in GE real estate are the sales, risk and property management.
The secondary users are finance for profitability prediction and the marketing department for identifying market opportunities.
All these employees use the system several times a day and thus the group DSS better supports the system.
Three levels of decision problem:
The decision support system have been the strategy enabler for GE real estate as the main strategy was to manage the business through the real estate cycles and establish a deeper presence in the underserved countries where the objectives are unbiased. It helps in examining the policies and procedures.
In the tactical level the managers can decide from regional operational plans and priorities based on the intelligence, customs knowledge and analytical assessment.
The DSS of the GE real estate supports both unstructured and semi structured problems. It helps in examining the risk posed to the customs mandate like business sector. It also finds the practical application to address and counteract the risk identified in the strategic level. (http://www.adb.org/Documents/Events/2004/Risk-Management )
The CEO of GE Real Estate's European division needs to make the following decision. Describe the process of making the decision and identify the data, models and technologies needed to support the process.
"A telemarketing company in Geneva was going out of business, vacating five floors of a building on which GE holds a $US10 million note, the loan might be at risk, what decision the CEO should make?"
(hint: CEO needs to have a better understanding of the likelihood that a loan on this specific property would be profitable by analyzing similar deals (by loan type, property type, location, ownership, tenant mix etc), local economic conditions (job growth, income growth, new construction, tax rates etc) and macro-economic conditions (interest rates, currency exchange rates etc). By better understanding the likelihood of profitability, they could better identify which loan opportunities to pursue, and optimal terms and conditions for each proposed loan.
Problem given in the case study:
A European based telemarketing company are moving out of the building which belongs to GE real estate.
Worth of the building assed to be $US 10 million
Estimated area vacated by telemarketing company in the building is 5 floors
Company will lose revenue on the loan for 5 floors in the building
Continuation of the loan will be at stake and telemarketing firm will be considered as payment defaulters in GE real estate's books.
Collection of Data and environment scanning of GE real estate:
GE real estate is one of the world's leading commercial real estate investors and lenders. They are considered one of the pioneers in real estate having operations in 20 countries worldwide and a strong presence in US market. They have more than 8000 building under their portfolio and total estimation of the portfolio is estimated to $US 48 billion. GE real estate is currently uses web enabled technology in all departments, majorly to support the primary user functions like risk, sales and property management and secondary user functions like finance and marketing. They use the system to analyse the risk management practices, to reduce non-performing assets, to reduce turnaround time in sales, to increase approval ratio, analyse the performance of the loan for the customers, and return on investment (ROI). This technology also eliminates the risk in transaction due to incomplete information and inaccurate information. GE real estate web enabled practices has given them extra edge in the market by mean of online reporting, analysing the market place conditions and portfolio risks. GE real estate's return of investment from the loans has increased the revenue by a greater extent.
Analysing the problem in intelligence phase:
According to the case study the given situation is a programmed problem to the company. The technology possessed by the company has capabilities to analyse portfolio risk in a particular market or an asset as an individual building and return on investment. So based on the situation given in case study ROI on the loan on the particular building will reduce and risk on the loan taken by the telemarketing company will be considered higher. Since the technology in the firm was programmed for this situation, the managers and CEO get the alerts for the problem and based on the problem CEO and managers can analyse profitability on the loan, current market scenario and sensitivity analysis on the problem to identify the alternate solution. Since the problem involving huge investment the CEO will take the ownership of the problem with the help of sales, marketing and risk management teams.
The intelligence phase ends with a formal problem statement. According to this case the problem statement is how to minimize the loss incurred by the loan on the telemarketing company and how to identify the perfect alternative to maximize the profit at low risk.
Decision needs to be taken about which direction further analysis needs to be done to identify source of problem discovered during intelligence phase. The design phase will a retrieve the data from data warehouse for sales, risk management, property management and analyses the data mathematically to derive the alternatives that can be used to solve problem. The major data collected from by data warehouse is used to analyse performance of the loan in the current market, market scenario, sensitivity analysis based current market scenario to identify alternatives and analysing the profitability and risk of each alternative solution derived. Also operating parameters of forecasting system needs to be analysed. Based on the above criteria's a possible solution will be derived to maximise the profit and minimize the loss for the 5 floors in the building.
Based on the case study the following alternatives exist:
Rent the 5 floors to other clients
Sell the 5 floors to another client
Invest in some other buildings and leave the 5 floors to happen on its own
Expand the floors to existing customer in the same building
Sell the 5 floor to another real estate company
Criteria to evaluate the alternatives:
Out of all the alternatives listed above we need to decide a criterion on the basis of which we can evaluate our alternatives. Thus in our DSS system it is the criterion which describes the acceptability of our solution. The main criterion for our system is to maximize the net profit of company. The evaluation of the criteria must take lot of aspects into consideration. They are as follows
Risk involved in implementing the alternative
Return on investment in the selected alternative
Breakeven point and profit margin
Time period taken to minimize the loss
Threats from the competitors
There are certain sub criteria to evaluate the alternatives. They are
Time to implement
Credit history of the clients
Financial stability of the GE real estate
Availability of correct data for analysis
Based on analysis the criteria and sub criteria, the choice of identifying the right alternative can be done.
In choice phase we decide the final course of action by finding the right alternative solution for the problem based on the criterions.
Rent the 5 floors to other client:
This alternative is considered the most likely scenario for this particular problem because
Risk is very less
Return is considered gradual but steady
Break even will be achieved in a long run but ROI will be high after break even
Loss incurred by the loss will be gradually minimized and maximization of profit only after break even
No threat by competitors because no interest charged and no ARR
This scenario has minimum drawbacks and correlate with the objective of the company marginally
Sell the 5 floors to a client:
This alternative is consider the average scenario for this problem because
Return on investment is high and one time
Break even and profit is achieved immediately
Loss incurred is capitalised
No treats from competitors
This scenario has major drawbacks because it does not correlate with the objective of the firm
Invest in some other building and leave the five floors to happen on its own:
This alternative is considered worst possible scenario because
Return on investment for time being is zero
Break even cannot be forecasted
Loss in revenue and profit
This scenario has major drawback because revenue and ROI is zero
Expand the floors to the existing customer in the same building:
This alternative is considered best possible scenario because
Return on investment is depends on interest rate and IRR to the new loan
Break even can be forecasted
Loss is minimized and profit is maximized
High threats from competitors
This scenario has minimum drawback because time factor for this particular alternative is uncertain
Sell the 5 floors to another real estate company:
This alternative is also consider average scenario because
Shared risk involved
Return on investment depend on the new real estate company
Break even is forecasted only in the long run
Loss can be minimized but profit is uncertain
Moderate threats from competitors
This scenario has huge drawback because it does not correlate with the objective of the firm and profit is uncertain due to its long run
Based on the simulation technique, the following alternatives are clearly examined based on criterions, sensitivity of the alternative are also done and considering sub criterion as positive. The optimal solution for the problem given in the case study can be resolved by first alternative - expand the 5 floors with the existing customer in the same building.
Even thought the risk involved is high, the existing customer has a track record with which we can analyse the performance of the customer and repayment capacity can be analysed based on current market performance of the company
Existing customer is easy negotiate and with strategic planning ROI can be forecasted
Break even can forecasted and profit is maximized compared to other alternatives
Threats of competitors can be minimized by negotiating interest rate and IRR
Existing customers are sensitive to market changes because of trust and loyalty.
Implementation of the selected alternative is done through web based with help of knowledge management system. Since problem as such are programmed and structured in the firm's technology, the identification of best alternative will not be time consuming. Now the CEO has to approve the selected alternative in the intranet so that the sales teams and property management teams work on achieving in implementation of the alternative.
You are required to design a DSS to support GE Real Estate for making decisions. Currently there is DSS used for GE Real Estate. You can design your own DSS based on your justification and knowledge. [35 marks]
Identifying the subsystems of the DSS for GE Real Estate (Ref. chap 3). You must describe the detailed content of each component. You need to indicate the required functions that each subsystem can provide.
You need to identify the data and information required by the DSS. Identify the key issues and challenges related to the data quality, consistency and integration etc for the data warehouse.
Suggestions on what models and tools will be used for analysis, forecast and support of decision making processes.
Identify users of the DSS.
Exam user interface design issues and discuss User Interface styles a
nd factors to be considered in DSS user interface design.
Stating your designed system could be individual, multi-individual, or group DSS. Identifying any groupware will be required in the DSS if the DSS is a group decision support system
SUBSYSTEMS OF DSS FOR GE Real Estate:
The data management subsystem is composed of DSS database, Database management system, Data directory and Query facility.
The DSS database of GE real estate consists of internal data collected from three departments namely the risk management team, the sales management team and the property management team. The external data is collected from local economic conditions (job growth, income growth, new construction, tax rates etc) and macro-economic conditions (interest rate, currency exchange rates, internal rate of return etc).
Database management system is the software used for establishing updating and querying the database. GE Real estate uses Oracle for database management.
Query facility is the (database) mechanism that accepts requests for data, accesses them, manipulates them, and queries them. In this case we have to use oracle queries to modify any data that has been entered in to the system.
Data Directory is a catalogue of all the data stored in the database. In GE Real estates the main function of data directory is to give the exact meaning of the data. Since different departments use same words with different meanings it is important to have a common meaning for the words used in the database. It is also used for retrieving information that is needed by the business professionals on specific objects.
Model management subsystem:
The model management subsystem is composed of Model base, Model base management system, Modelling language, Model directory and Model execution, integration and command processor.
In GE Real estate model base consists of routine and special models like forecasting, statistical and financial models that provide the analysis capabilities in a DSS. Different types of models used in GE Real estate are:
Strategic models: It is used by top management for strategic planning responsibilities. GE Real estate uses forecasting model to manage the business in emerging markets like India and China by the CEO and CIO.
Tactical models: It is used by middle management to allocate and control different organizational resources. In GE Real estate property management professionals and risk management professionals who require both internal and external data sources to make decisions.
Operational models: It is used by the organization for day-to-day activities like the sales department for seeing the likely hood of a loan being approved. The decision making process of these activities require only internal data.
Analytical models: It is used by the finance and marketing departments in GE Real estate. The finance analyses the data for forecasting profitability. The marketing department analyses the data to identify market opportunities.
Model Base Management System
In this case they use Oracle database, informatica, ASP, ASP.net and cognos for managing and manipulating the models that are listed here.
Model Directory is used in GE Real estate to define the various models used along with their availability and capability of each models.
User interface subsystem
Since the DSS is to be used by various departments who might not have complete system knowledge the user interface subsystem must be easy to use and comprehend. The reports are the main user interface that should be made simple and should have important fields like sensitivity analysis for the risk management team being highlighted.
Management of user Interface subsystem
UIMS, user interface management system is the software which is used to manage this subsystem and provide all the functionality related to DSS. In GE Real estate they use ASP and ASP.net as the frond end software and they use cognos for reports. Graphic User Interface(GUI) shall be used since it is easy to analyse the data from pictures than statistical information.
Knowledge-based management subsystem
The decisions based on knowledge and expertise are given by the Knowledge based subsystem to the decision makers for improved customer service and to make decisions which are efficient, responsive and profitable.
DATA and INFORMATION:
The various data that is required by the DSS are loan type, property type, location, ownership, tenant mix, occupancy, rental rates, customer credibility, job growth, income growth, new construction, tax rates, interest rates, currency exchange rate etc.
Issues related to data:
Since the data comes from various sources it should be filtered before storing in the data warehouse.
The same data will be used for analytical purposes in the future therefore cleaning of the data is very important.
Definition of data should be universal in the organization. In GE Real Estate different departments had different interpretations for the same word therefore it required upfront effort to make the meanings of different words clear to the various departments.
Most of the documents were in spread sheet or in paper before the commencement of DSS therefore transferring this historical information takes a lot of time and effort.
The policies for different countries will differ significantly and incorporating these set of rules in a global DSS becomes very difficult.
A wrong input from one department will have impact across the organization therefore the quality of data should be verified before entering it in to the data warehouse.
MODELS and TOOLS:
We will use the simulation model and selecting the best alternative for the problem identified. Since GE Real Estate deals with decisions which run in to millions of dollars simulation model will be appropriate here to find the credibility of the decision taken before implementing it. Web analytics and web intelligence tools should be used by GE Real Estate since they are looking for sharing of information globally application of the business analytics to the web sites will be the best method to spread the information real-time. This model also reduces the risk of uncertainty of the decisions taken.
USERS of DSS:
President and CEO
Risk Management personnel
Sales Management personnel
Property Management personnel
While designing a user interface the main factor to be considered is the ease of use. Even if the DSS is good if it is not easy to use then the implementation of DSS in the organization may fail.
Most popular style of user interface is the Graphic User Interface(GUI) since it is easy to observe the results visually.
The end user requirements must be taken in to consideration before designing an interface.
TYPE of DESIGNED SYSTEM:
The designed system is a group DSS. Web based intranet and internal e-mails will be the groupware required for the group DSS. In GE Real Estate the decision taken by one country must be known to the other country, for this purpose intranet will be used. Most of the communications will be happening between strategic level decision makers therefore an internal e-mail with all the contacts in a drop down will be used in order to speed up the communication process.
Specify the technologies and hardware for supporting such type of DSS.
Give the analysis on the hardware and software selection. Identify the software platform of the DSS for GE Real Estate. Choose the method of obtaining a DSS. You also can search from the Web for some appropriate real life vendors/software tools that may be used for integrating the DSS. This will be reflected by your prototype as well.
Identifying the key roles in DSS development. (Who should be involved (or the participants) in the DSS development project?)
Hardware and Software Required:
Desktop computers, Personal digital assistants(PDA's),Lap tops and Mobile Phones.
The various software's used are Oracle, informatica, ASP, ASP.net, HTML and cognos.
While choosing the hardware and software for the DSS the technical support is the major criteria to be considered. Since we do not have the liberty of time we have to be careful in the selection process.
The key roles in DSS Development are
Risk Management Personal
Sales Management Personal
Property Management Personal
Finance Department Personal and
Marketing Department Personal