Pergamon

PII: SO967-07OX(97)00007-3
Transport Policy, Vol. 4, No. 3, pp. 141-146, 1997
( 1997 Published by Elsevier Science Ltd
All rights reserved. Printed in Great Britain
0967-070X/97 $17.00 + 0.00
Inaccuracy of traffic forecasts and cost
estimates on large transport projects
Mette K. Skamris* and Bent Flyvbjerg
Department qfDevelopn?ent and Planning, Aalborg University, Fibigerstraede 1 I. DK-9220 Aalborg East,
Denmark
Little research has been carried out on before-and-after studies of traffic and costs in large
transport infrastructure projects. The few studies made all show a tendency for forecasts of
construction costs to be underestimated, and for traffic forecasts to be overestimated. An
examination of construction costs and traffic in seven large Danish bridge and tunnel projects
shows that construction costs have been underestimated and traffic has been overestimated in the
initial phases of planning. This pattern is also found in studies from other countries of large
transport infrastructure projects. When the results of the Danish and the other projects are pooled
together, the main lesson to be learnt is that cost overruns of 50-100% are common and overruns
above 100% are not uncommon. Traffic forecasts that are incorrect by 2040% compared with
actual development are common in large transport infrastructure projects. The result of this
overoptimism in the initial phases of planning is that decisions are based on misleading forecasts
that may lead to a misallocation of funds and underperforming projects. 0 1997 Elsevier Science
Ltd. All rights reserved.
Keyw,ords: before-and-after studies, cost overruns, large transport projects, traffic
Introduction
Little research has been carried out on before-and-after
studies of traffic and costs in large transport
infrastructure projects. The few studies made all show
a tendency for forecasts of construction costs to be
underestimated and for traffic forecasts to be overes-
timated.
Within the last two decades it has been decided that
billions be invested in the Danish transport
infrastructure, divided between a few very large
projects, such as the Great Belt and the 0resund links.
A decision is in the pipeline for the construction of a
fixed link between Denmark and Germany across
Fehmarn Belt. The Great Belt and the 0resund links
from coast-to-coast alone amount to approximately
DKK 40 billion in 1994 prices (USS6.3 billion). The
construction costs of a Fehmarn Belt link is currently
estimated by the European Commission at DKK 20-35
billion (US $3.335.8 billion) for the coast-to-coast link
and DKK 15-30 billion (US $2.555 billion) for the
connecting infrastructure (European Commission,
1993, p. 82). Such sums are substantial anywhere in the
*Author for correspondence. Tel: + 45 9815 8522; Fax: +45 9X15
3537; e-mail: mskamrisiuji4.auc.dk
world and especially in a small country of five million
inhabitants, such as Denmark.
With the large amount of money spent on large
transport infrastructure projects, it is remarkable how
little data and research is available worldwide that
might help answer basic questions of whether such
projects have had the intended effects, and how the
actual rate of return on such projects compares with
the projected rate of return.
This paper covers three issues. Firstly, the results are
presented from a study of forecast and actual costs and
traffic in seven large Danish bridge and tunnel projects
(Skamris, 1994). Secondly results from other similar
studies are presented (Skamris, 1994; The Danish
Transport Council, 1995). Thirdly, percentage distri-
butions of cost overruns and traffic development are
shown for a number of projects.
Research method
The examination of Danish projects covers seven
bridges and tunnels. Forecasts of construction costs
and traffic, elaborated just before decisions were made
to build, are compared with actual construction costs
and actual traffic development. The seven projects are:
the Limfjord Tunnel (inaugurated May 1969); the New
141
I nuccurac~ of traffic forecasts: M K Skamris und B Flyvbjerg
Little Belt Bridge (October 1970); the Sallingsund
Bridge (May 1978); the Vejle Fjord Bridge (July 1980);
the Far0 Bridges (June 1985); and the Great Belt and
Oresund links which are both under construction.
The criteria for choosing the projects was size and
geographical distribution, i.e. the projects are among
the most expensive transport infrastructure projects
constructed in Denmark since 1960, and they are
located in different parts of the country. The
examination is based on original source material, such
as Construction Laws, background reports, traffic
statistics, and final contractor accounts. For each
project forecast construction costs for coast-to-coast
facilities as presented to decision makers are compared
with actual costs. The costs are calculated in fixed prices
exclusive of value-added-tax. Traffic forecasts are
compared with actual traffic in the opening year of the
projects.
Besides the study of the Danish projects, before-and-
after studies of large transport infrastructure projects in
other countries are examined. Here the delimitation is
not bridge and tunnel projects only; motorways, trunk
roads and rail are included, also. The reason for not
excluding such projects is that not enough material exists
to allow an examination of just bridges and tunnels.
The examination of projects outside Denmark is not
based on original source material, but on secondary
sources. Therefore, it has been important to evaluate
what kind of sources the studies are based on. Some of
the studies are based mainly on newspaper articles of
uncertain validity, which is why they were excluded.
Other studies had to be excluded because the
descriptions of economic factors were not sufficient,
e.g. construction costs were quoted in current prices or
no price level was given or no description was stated of
what was included in the costs. The studies excluded
showed the same overall trend as the studies included
regarding the accuracy of traffic and cost forecasts.
Results
In this section results of the examination of Danish and
other large transport infrastructure projects are
presented.
Danish bridge and tunnel projects
For the seven Danish projects, except Sallingsund,
Great Belt and Oresund, the projects were established
to relieve traffic on already existing links. In the
Sallingsund case the bridge substituted ferry services.
Because of a clear need for extra capacity, the debate
in the Danish Parliament was not focused on the need
for new links, but was concentrated more on rights-of-
way and technical solutions. The decision making report
behind the Far0 Bridges contains a cost-benefit
analysis, but it was only briefly referred to under the
parliamentary debate and the results from the analysis
were not taken into consideration. In Table 1 the results
Table 1 Difference between actual development and forecasts of
construction costs, construction time and traffic for the Seven Danish
Bridge and Tunnel Projects (Skamris, 1994. p. 53)
Project Difference between actual development and
forecast (%)
Construction cost Construction time4 Traffic
Limfjord Tunnel 21 14 x
New Little Belt Bridge -10 57 -32
Sallingsund Bridge 33 61 21
Vejle Fjord Bridge -3 675 x
Fars Bridges 27 25 -22
Average overrun 14 46 -9
Great Belt link 542 h 9
Oresund link 11
h 2!,
Notes:
The difference is calculated as (actual-forecast)/
forecast x 100 = difference in percent.
The overrun is calculated from adoption of the Construction Law in
1987 till latest forecast from 1992.
The overrun is calculated from adoption of the Construction Law in
1991 till latest forecast from 1993.
4The difference is calculated as (actual-forecast)/
forecastx 100 = difference in percent.
Construction time is set at 3 years since no estimate of construction
time is stated in the Construction Law.
%Zonstruction of the project is not finished.
The difference is calculated as the difference between actual and
forecasted traffic for traffic in the opening year of the project:
(actual-forecasts)/forecastx 100 = difference in percent.
No traffic forecasts available in the Construction Law.
The increase in traffic forecasts is from the adoption of the
Construction Law in 1987 till the latest forecasts from August 1994.
The traffic forecast has not been raised since adoption of the
Construction Law.
of the examination of the seven Danish projects are
shown. The average construction cost overrun for the
five completed projects was 14%, ranging from minus
10 to plus 33%. Traffic development could only be
calculated for the New Little Belt Bridge, the
Sallingsund Bridge and the Far0 Bridges, since no
traffic forecasts are stated in the Construction Laws for
the Limfjord Tunnel and the Vejle Fjord Bridge. For
these three projects actual traffic development was on
average 9% below estimated traffic development,
ranging from 27% above to 32% below the estimates.
All causes of the cost overruns cannot be verified
from the final contractor accounts. Three of the budgets
were exceeded, partly due to changes in technical
specifications and delays. However, in these cases this
explains only 30% of the cost overruns.
For the Great Belt and 0resund links no comparisons
between forecast and actual construction costs and
traffic can be made as yet, since these links are currently
being built. Development in forecasts can be traced,
however, and are shown in Figure 1. For the 0resund
project, criticism has been raised that traffic forecasts
were fabricated in order to show the project profitable
and thereby increase the chances of having it approved
in Parliament.
It is too early to compare forecast and actual viability
for the 0resund and Great Belt links. All data on viability
for these projects still relate to forecast viability. A
142
Great Belt.
170
r
Road Traffic
160 -
I.50 -
to -
I I I I
87 88 89 90 91 92 93 94
0resund
190
170 t
Construction Cost
180 .-.
/
160
I50
Figure 1 Forecasts of traffic and construction costs for the Great
Belt and 0resund Links.
number of observations can be made, however. For the
Great Belt link, being a state-owned enterprise, there are
no share prices, and, therefore, no market assessment of
viability of the project. Given the way the project is set
up, viability is best described separately for the road and
rail links, with viability for the road link expressed by
expected pay-back period, and for the rail link by the size
of the fixed fee the Danish State railways has to pay for
using the link. In the ratification year, 1987, the pay-back
period for the road link was estimated at 12years. By
1992, when construction was approximately midway, the
estimated pay-back period had increased by 38% to
16.5years. During the same period forecast road traffic,
and with it revenues, had increased by more than 50%.
Then, from 1992 to 1993, the estimated pay-back period
decreased by 15%, mainly due to further increase in
estimated traffic and due to assumed lower interest rates
on loans. The rail link will be paid over 30years by the
Danish State Railways through a fixed annual fee that will
be set to cover construction costs and interests. The
forecast size of the fee has increased 57% 1987-1994. At
the same time rail traffic may become lower than
expected. Against this background, the Danish State
Railway has called the pay-back arrangement for the rail
link into question.
Construction of the 0resund link was ratified by the
Danish Parliament in 1991. As for the Great Belt link,
a condition for ratification was that the link would be
self-financed, i.e. revenues from user tolls would cover
costs and no public funds would be spent on the project.
The condition was explicitly spelled out both in the
political agreement about the project between the main
parties in the Danish Parliament and in the agreement
between Denmark and Sweden. When the Oresund law
was proposed to Parliament in May 1991, Parliament
was told that in terms of forecast viability the project
would create net revenues of DKK 50 million per year.
The Auditor General of Denmark has found, however,
that internally in the Ministry of Transport, in the
months prior to proposing the law to Parliament, four
appraisals of viability were carried out that had shown
the project to be non-viable, i.e. revenues did not cover
costs over a required 30year period. These appraisals,
or information about them, were not made available to
Parliament when it made its decision regarding
IZlresund, a fact which has been criticized by the Auditor
General (Rigsrevisionen, 1994, pp. 16-28).
Other transport projects
Few studies exist that rigorously compare forecast with
actual costs and traffic for larger groups of transport
infrastructure projects. In the British and the Scandi-
navian languages four such studies have been identified.
The first study was carried out by the Transport and
Road Research Laboratory in the UK and covered 21
metro systems in developing countries each at a value
of US $22-165 million at 1987 prices. For 13 of the 21
metros capital cost overruns could be estimated, and
for nine metros, forecast and actual ridership could be
compared. Table 2 shows that six metros had overruns
above 50%, two of these in the range from lOO-500%.
Three metros had overruns in the 20 to 50% range,
and the remaining four in the minus ten to plus 20%
range. Regarding traffic, seven of the nine metros had
actual traffic development in the range of 2&90%
below estimated traffic, one of these in the range 70-
90% and the remaining two in the range from O-20%
below estimated traffic development (Fouracre et al.,
1990).
The second study was carried out by the Auditor
General of Sweden and covered 15 road and rail
projects with a total value of SKR 13 billion at 1994
prices (approx. US $1.6 billion). The average capital
cost overrun for the eight road projects was 86%,
ranging from 2-182%, and the average overrun for the
seven rail projects was 17%, ranging from minus 14 to
plus 74% (Riksrevisionsverket, 1994). It should be
noted regaring the Swedish study, however, that two
Table 2 Difference between actual development and forecasts of
construction costs for metro systems in developing countries.
(Rigsrevisionen, 1994b, pp. 7. 10)
Difference between actual development and forecasts (%)
Construction cost Number of Traffic Number of
projects projects
-10 to+ 10 3 As forecast I
+10to+20 1 0 to-20 1
+20 to+50 3 -20 to-50 2
+50t0+100 4 -SO to-60 2
+ 100 to + 500 2 -60 to-70 2
143
I naccuracy qf tr~~fic,forecam: M K Skamris and B Fl~vv&vg
thirds of the projects were still under construction when
the study was carried out. Final costs for these projects
may therefore turn out to be higher than the expected
final costs quoted by the Auditor General.
The third study was carried out by the US
Department of Transportation and covered ten US rail
transit projects with a total value of US $15.5 billion at
1988 prices. The total capital cost overrun could be
calculated for eight of the projects and averaged 61%,
ranging from minus 10 to plus 106% for the individual
projects. The actual traffic development were in average
65% below forecasts, ranging from 28885% (Pickrell,
1990).
The fourth study was carried out by the UK National
Audit Office. Here traffic forecasts were compared with
actual development for 41 UK road projects within the
Department of Transport and Welsh Office. The
Department of Transport are reasonably satisfied if
their original forecast of traffic flow for the year after
opening a given section of road is within f20% of
actual flow for that year. The Study from the National
Audit Office shows that 22 of the 41 schemes analyzed
were within this limit. The 19 schemes with wider
variation contained examples where differences between
forecast and actual flow ranged from minus 50 to plus
105% (National Audit Office, 1988). In the 41 projects
actual traffic flows were below forecast traffic flow to a
degree that the authorities might have adopted lower
design standards with possible savings of some &225
million. Similarly, actual traffic flows for 27 projects
could justify higher design standards than those
adopted at an additional cost of approximately & 160
million. The National Audit Office notes that the
authorities have not evaluated in the light of actual
traffic flows the consequences of inaccurate forecasts
for individual road schemes, nor have they in practice
attempted to quantify the costs and benefits actually
achieved (National Audit Office, 1988, p. 4).
Judging from these studies, forecasts for the
development of rail transport seem to be more
problematic than forecasts of road traffic. The US
Department of Transportation study mentioned above,
found that for virtually every project the divergence
between forecast and actual ridership was wider than
the entire range of the critical decision variables
(Pickrell, 1992). Actual ridership was 28-85% lower
than forecast ridership, meaning that forecasts overshot
actual development by 388578%. In the Transport and
Road Research Laboratory study mentioned above,
forecast ridership overshot actual development by an
average of more than 100%. Only in two of the nine
metros were forecast ridership approximately achieved
(actual ridership less than 20% lower than forecast
ridership) (Fouracre et al., 1990).
Besides these four studies, single-case studies have
been carried out which show the same tendency to
underestimate construction costs and overestimate
traffic. For example, studies have been made of the
Channel Tunnel. When the Channel Tunnel Treaty was
ratified by the French and the British parliaments in
July 1987, total construction costs for this privately
financed project were estimated at E2.601 billion at
1985 prices (US $3.35 billion). By November 1990 the
construction costs had increased by 62% in real terms
to i4.208 billion (US $5.42 billion) (Major Projects
Association, 1994). In May 1994 total construction
costs had increased to E4.650 billion in real terms
(US $6.00 billion), a cost overrun at 80% (Vickerman,
undated, p. 23).
In many studies the authors have tried to find out
what caused the overruns. Changes in design, delays,
and technological innovation can explain some of the
overruns, but still a large part cannot be explained by
technical causes. One of the authors believes that a
cause can be found in manipulated forecasts. He has
been able to demonstrate that this was in fact the case
for a number of projects by interviewing public and
government officials and politicians involved in those
projects (Wachs, 1990).
The key variables of financial viability for large
transport infrastructure projects are costs (investment,
financing, operations and maintenance) and revenues
(mainly from fares and tolls). For each variable,
forecast values may be different from actual values as
documented above. Actual project viability may
therefore be substantially different from forecast
viability.
The difference between forecast and actual viability
may be so large that had actual viability been known
for a given project, decision makers may have resolved
either (i) not to implement the project; (ii) implement
the project in another form; or (iii) implement another
project. In other words, non-viable projects, or projects
that are less viable than foregone projects, may be
implemented not because they are viable but because
their viability was inaccurately predicted. The result
would be an inefficient use of resources.
For the Channel Tunnel, original estimates of
viability have been rendered irrelevant by actual
developments which have taken the project on a roller-
coaster ride from expected high profitability to what
analysts have identified as near-bankruptcies. In
September 1995, Eurotunnel suspended interest
payments on its loans for an 18 month period. Today
investors worry that Eurotunnel has been as optimistic
predicting traffic in the tunnel as it was predicting costs
and time-schedules. Sensitivity analyses suggest that if
estimated revenues are off target by 25%, Eurotunnel
will run out of money in 1999; if they are out by 15%,
money will last until 2001 (The Economist, 1994; The
Economist, 1989). Considering that costs were off target
by approximately 80%, investors concerns are very
real. If, however, the start-up problems of operation
are overcome, and if pricing and marketing strategies
are set right, the Channel Tunnel may turn into a
profitable venture in the long-term.
144
I naccuracy of traffic forecasts: M K Skamris and B Flyvbjerg
-15 IO 10 20 20 - 50 50 - 100 100 500
Actual - Forecast x loo
Forecast
Figure 2 Percentage distribution of construction cost development in
41 transport infrastructure projects.
Distribution of overrun
Cost development in the Danish and other projects are
distributed as shown in Figure 2. In all, 41 Danish,
Swedish, British and American projects are included in
the distribution. The actual construction cost
development in fixed prices ranged from being 15%
below estimated costs to up to 500% above estimated
costs. In three-quarters of the projects, actual
construction costs exceeded estimated costs by more
than 10%. Most often, in 32% of the projects, actual
construction costs were between 50 and 100% above
the estimated costs.
The distribution of traffic forecasts is shown in Figure
3. In all, 20 Danish, Swedish and American are
included. Actual traffic development ranged from being
30% above the forecasts to being 90% below the
forecasts. In nine out of ten projects actual traffic
development was below that forecasted, and most often,
in 50% of the projects, actual traffic was below
forecasts by 20-60%.
It should be stressed that the distributions shown in
Figure 2 and Figure 3 pool together road and rail
projects and that the distributions may be different for
the two types of project. For example, the examination
from the Auditor General of Sweden indicates that cost
overruns in road projects are more pronounced than
overruns in rail projects. Also, existing data indicate
that over-optimistic traffic forecasts are more
pronounced for rail projects than for road projects.
_ -
-
- - n-n
-90 - -70 -70 -60 -60 -50 -50 -20 -20 0 0 30
Actual ~ Forecast x ,oo
Forecast
Figure 3 Percentage distribution of traffic development in 20
transport infrastructure projects.
Therefore, firmer conclusions will have to await
examination of a larger number of projects.
Conclusion
From the projects examined, the main lessons to be
learnt are that cost overruns of 50-100% are common
for large transport infrastructure projects and overruns
above 100% are not uncommon. Traffic forecasts that
are out by 20-60% compared with actual development
are common for these projects. Forecasts of project
viability for large transport infrastructure projects are
often over-optimistic to a degree where such forecasts
correspond poorly with actual development.
The result is that decisions based on misleading
forecasts-often presented to parliament, to other
decision makers and to the general public-may lead to
a misallocation of funds, and to underperforming
projects during construction and operation.
The differences between forecast and actual costs and
traffic documented in this paper cannot be explained
primarily by the inherent difficulty in predicting the
future. The difference is too consistent and too one-
sided for this to be the case.
It goes without saying that this state of affairs does
not mean that viable projects and projects showing
good practice regarding estimated and actual viability
do not exist. Even less does it mean that average
practices cannot be substantially improved upon in
project appraisal. It does mean, however, that a
pervasive and consistent problem exists for large
transport infrastructure projects regarding the reliability
of the information on the basis of which decisions are
made to build or not. This problem cannot be
completely eliminated from large transport
infrastructure projects, but it can be acknowledged and
reduced.
References
European Commission (1993) Growth. competitiveness, employment.
The challenges and bvay.s,forward into the 21st century. White Paper,
Brussels: Office for Official Publications of the European
Communities.
Flyvbjerg, B., Bruzelius, N. and Rothengatter. W. (1995) Fehmarn
Belt: issues of accountability, lessons and recommendations regarding
appraisal of a ,fixed link across Fehmarn Belt. Report No. 95.03.
The Danish Transport Council, Copenhagen. May 1995.
Fouracre. P. R., Allport, R. J. and Thomson, J. M. (1990) The
performance and impact of rail mass wansit in developing countries.
TRRL Research Report 278. Transport and Road Research
Laboratory, Crowthorne.
Major Projects Association (1994) The Channel Tunnel. In Beyond
2000: A Source Book for Major projects. Oxford: Templeton
College, 1994: The Eeonomisr. April 30 1994. 73.
National Audit Office (1988) Deparrment of Transpor/, Scottish
Department and Welsh Office: Road Planning. HMSO, London.
Pickrell, D. H. (1990) Urban rail transit projects:,forecast versus actual
ridership and cost. US Department of Transportation, Washington
DC.
Pickrell, D. H. (1992) A desire named Streetcar: fantasy and fact in
rail transit planning. Journal of the American Planning Association,
58(2). 158-l 76.
145
Inaccuracy of traffic forecasts: M K Skamris and B Flyvbjerg
Rigsrevisionen (1994) Beretning ii1 statsre&oreme om udviklingen i de
okonomiske overslag vedrorende Oresundsforbindelsen. RR 2001/94.
Auditor General of Denmark, Copenhagen, November 1994).
Riksrevisionsverket (1994) Infrastrukturinvesteringar: En
kostnadsjrimfdrelse mellan plan och uifall i 15 stdire projekt inom
V&verket och Banverket. RRV 1994: 23. Auditor General of
Sweden, Stockholm.
Skamris, M. K. (1994) Large transport projects:.forecast versus uctual
traffic and costs. Department of Development and Planning,
Aalborg University.
The Economist, (1994) p. 73, 30 April.
The Economist, (1989) p. 73, 29 April.
Vickerman, R. (undated) The Chunnel tunnel-u progress report. The
University of Kent, Canterbury.
Wachs, M. (1990) Ethics and advocacy in forecasting for public policy.
Business and Professional Ethics Journal, 9( I &2).
146