Demand shortfall in infrastructure construction projects: case of rail projects in India

Abstract

This paper presents the case of shortfalls from the forecasted demand in feasibility studies of infrastructure construction projects (ICP). The demand forecast is generally required during the project formulation stage. An accurate or ‘close to reality’ demand forecast is significant for the success of any ICP. The paper highlights the role of the utilization of a project on the financial and economic sustainability of ICP. It also identifies the components of a project affected by the change or shortfall in demand. An evaluation of a feasibility study is done keeping the focus on demand and its consequences on expected financial and economic benefits of the project. A metro rail project is selected as a case study for the comparison of forecasted demand with the actual demand after commissioning of the project. The outcome of the exercise revealed substantial variations in demand. The case is then analysed for the extent of variation in the forecasted and actual benefit streams related to the financial and economic performance of the case example. The methodology is applied to a set of similar projects for analysing the universality of the phenomenon. The results prove that ICPs often face a demand shortfall and this has far reaching implications in terms of cost of underutilization. Finally the paper comments on the critical role of demand forecasting in meeting the objectives and success of ICP.