How (In)accurate Are Demand Forecasts in Public Works Projects? The Case of Transportation

TL;DR

This study reveals that demand forecasts for transportation infrastructure are generally highly inaccurate, especially for rail projects, leading to significant financial risks and highlighting the need for improved forecasting methods and governance reforms.

Contribution

First large-scale statistical analysis demonstrating widespread inaccuracy in transportation demand forecasts across multiple countries and project types.

Findings

Rail passenger forecasts overestimated by 106% on average

Half of road project forecasts deviate by more than 20%

Forecast accuracy has not improved over 30 years

Abstract

This article presents results from the first statistically significant study of traffic forecasts in transportation infrastructure projects. The sample used is the largest of its kind, covering 210 projects in 14 nations worth US$59 billion. The study shows with very high statistical significance that forecasters generally do a poor job of estimating the demand for transportation infrastructure projects. The result is substantial downside financial and economic risks. Such risks are typically ignored or downplayed by planners and decision makers, to the detriment of social and economic welfare. For nine out of ten rail projects passenger forecasts are overestimated; average overestimation is 106 percent. This results in large benefit shortfalls for rail projects. For half of all road projects the difference between actual and forecasted traffic is more than plus/minus 20 percent. Forecasts have not become more accurate over the 30-year period studied. If techniques and skills for arriving at accurate demand forecasts have improved over time, as often claimed by forecasters, this does not show in the data. The causes of inaccuracy in forecasts are different for rail and road projects, with political causes playing a larger role for rail than for road. The cure is transparency, accountability, and new forecasting methods. The challenge is to change the governance structures for forecasting and project development. The article shows how planners may help achieve this.