Robert Bain: Toll forecasts: Big numbers win prizes, 2009

Publication Date
08 April 2009

This article discusses how traffic and revenue projections in investor financed toll road project bids can be overinflated and how investors can be alert to these overinflated projections.

The author claims that a number of high-profile investor-financed toll roads around the world are currently failing to meet expectations. He contends that this is not because of the current economic climate but because of overoptimistic traffic and revenue projections. He argues that overoptimistic projections are made because the procurement process in general — and bid evaluation criteria specifically — reward high traffic and revenue forecasts, not accurate ones.

The author argues for a renewed emphasis on understanding the demand fundamentals and less willingness to accept forecasts at face value — especially those that resemble statements of advocacy rather than unbiased predictions. He claims that investors need to be alert to methods of inflating toll road traffic and revenue projections.

The article provides a list of 21 ways in which projections can be inflated. The list is not exhaustive — the author mentions several other highly technical techniques that can be difficult to uncover. However, he also gives some key signs, such as sensitivity tests that show limited adverse impact on projected traffic or revenues and the use of ‘pseudoscience’, to indicate that there may be an issue with toll revenue projections presented in bids.