Large Infrastructure Projects: A Review of the Quality of Demand Forecasts and Cost Estimations

Abstract

Decision making with respect to large infrastructure projects is at least partly based on ex ante evaluations of costs and impacts. Impacts include economic, environmental, and social impacts, sometimes aggregated in a cost-benefit analysis (CBA). For such ex ante evaluations the quality of the related demand and costs forecasts is very important. This paper aims to answer four questions: (1) What is the quality of demand forecasts for large infrastructure projects? (2) What is the quality of cost forecasts for these projects? (3) How can current practices with respect to assessing the demand and cost forecasts be improved? (4) Which implications do the insights have for practice, and which challenges for future research can be derived from the findings? A literature review is used to answer the first three questions. It is concluded that the quality of transport demand and costs forecasts is often very poor, especially for rail projects. This is not so much a lack of adequate forecasting techniques or a matter of insight into the factors determining costs, but more the strategic behaviour of some actors. Improvements therefore should not only be looked for in the area of transport demand and cost-estimation methodologies, but should also focus on the question of how strategic behaviour can be avoided or at least limited. These conclusions are very important for CBA because cost underestimations and demand overestimations have a major impact on the cost-benefit ratio and decrease the potentially positive impact of CBA on the quality of decision making. The paper discusses several challenges for related future research.