"It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so."
– “The Big Short”
Forecasting traffic accurately is a very difficult and thankless task, as I explained in my previous blog: Traffic Risk in Highway PPPs, Part I: Traffic Forecasting. As such, this gives rise to very real financial risks if these forecasts turn out to be wrong. This risk has crystallized many times as manifested in high-profile distressed projects, bankruptcies, renegotiations and bailouts.
So what’s driving the inaccuracy and resulting risk in traffic forecasts? In the forthcoming Public-Private Infrastructure Advisory Facility (PPIAF) and Global Infrastructure Facility (GIF) publication, Toll Road PPPs: Identifying, Mitigating and Managing Traffic Risk, which will be published on the PPP Knowledge Lab later this month, we postulate that forecasting inaccuracy comes from three sources: