A Strategic Investment Framework Towards Achieving Singapore SMART Community Vision

Tan Hui Kee Joanne

Abstract

The government has already paved the pathway towards the SMART Community vision and what it needs the most is market participation. To encourage market participation and investments, a systematic and holistic investment strategy should be presented to the investors. The objective of this report is hence to provide a multi-step strategic analysis which empowers investors with greater control of their investments and allows them to make the best decision at various points of their investments. A strategic investment framework comprising of (i) Enhancing the understanding of SMART Community industry (ii) Embedding Options into the valuation of SMART Community investment (ii) Prioritizing SMART Community investment domains using AHP, was proposed to achieve the aforementioned objectives.

The first stage of the proposed framework, enhancing the understanding of the SMART Community industry, enables investors to foresee where their investments are headed and make informed decisions to avoid risks. While the second stage, embedding options into the valuation of SMART Community investment, allows investors to take managerial flexibility into consideration when valuing their investments henceforth better reflects the true value of the investments. Two decision models, a conventional model without option and one with options embedded, were constructed and a comparison of the results obtained from the two models were also conducted to highlight the benefits of incorporating Options Thinking into the valuation of SMART Community investment. Based on the case study illustration, the worth of the SMART Community investment is estimated to be highly promising and the optimal decision is to always invest in the pilot project and full development but make strategic adjustments according to market conditions (e.g. transfer of ownership when demand is low and expand when demand is high). Last but not least, the Analytic Hierarchy Process was adopted to identify the most promising domain in SMART Community investment as a strategic focal point so as to encourage market participation. Based on the model constructed, SMART Planning and SMART Living are the best options and investors should prioritize their resources to these two areas. The proposed framework is an effective tool for assessing the economic feasibility of the SMART Community investments and it empowers investors with greater capabilities to take advantages of the potentials of their investments and hedge downside risks. However, the proposed framework is also not all perfect without any limitations. The limitations of the conceptual model used in each stage of the investment framework are also discussed in this report. In general, more accurate quantification of the various values used in the different models will be an important area of future research, to enhance the accuracies of the results obtained.