They retrenched just before a crisis

A construction development company could retrench just before a crisis – thanks to the principle

A Norwegian developer planned a prestigious, large-scale housing construction project to the west of Oslo shortly before the last crisis.

A Successive Principle analysis of profitability revealed a high level of uncertainty relative to the profits. Amongst other items identified was the threat of house prices falling.

The company decided to restructure the project with a view to increasing profits. A few years later the restructured project was analysed again. Sure enough, the costs had been reduced considerably, as projected. However the threat of lower sales prices had increased. The ratio of earnings to threat was therefore still too unfavourable.

The company therefore shelved the project and spared itself the significant losses which would have resulted from the serious crisis which shortly thereafter hit the construction market in the Oslo area.

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