4.3 - Forecasting the demand

4.3 - Forecasting the demand

Introduction

There are two distinct procedures for forecasting the demand for transport services or facilities, depending on whether the proposal is for a new service or facility or an improvement to an existing service or facility.

Note: The estimated future demand for the do minimum and each option, including the proposal, must be calculated.

Procedure for new service or facility

Where a new transport service or facility is proposed, the evaluator could undertake a WTP survey and develop a demand estimate using a methodology appropriate to the proposed service or facility.

The basis of the survey and demand estimate and any underlying assumptions, particularly those related to traffic growth rates, shall be clearly stated in the evaluation report.

Procedure for improvement to service or facility

Forecasting demand for improvements to transport services involves the following:

Step Action
1 Estimate the WTP and elasticity of demand for the particular quality improvement to an existing service or facility:
  • If the proposal is for a major improvement to an existing service or facility then a specially commissioned stated preference (SP) survey could be undertaken to assess WTP and the elasticity of demand.
  • If the proposal is for a relatively small change to an existing service or facility then inference of the WTP for the specific service quality and its elasticity of demand may be drawn from other comparable services or facilities.
Note: Where information from a comparable service or facility is used, details of the comparison must be provided.
2 Identify the relevant elasticity and cross elasticity values for the user charges and service quality change, either from the WTP survey or using values from other sources. Some values applicable to New Zealand are provided in appendix A13 and further information is provided in reference 1.
3 Calculate the demand for the service where there is an increase in the user charge:

Total number of new and existing users,

Qprice= [((P1- Pnew) / P1) x UCE x Q1] + Q1

where:

Q1= existing number of users

P1 = existing average user charge

Pnew = new average user charge

UCE = user charge elasticity.
4 Calculate the demand for the service based on the change in service quality:
  • Use the relevant elasticity value derived from the WTP survey or from an alternative source.
  • Multiply the elasticity value by the number of new and existing users (Qprice) as calculated in step 3, to derive the total demand for the improved service (Qquality).
5 Determine the proportion of new users transferring from road and from other sources. Use cross-elasticity values for road to alternate services where available or use other sources (ie surveys). Appendix A13 and reference 1 may provide appropriate indicative values.
6 Test the results by varying the user charge levels and service quality elasticity for the impact on the demand. From this testing, a more complete demand curve can be derived.
7 Compare the results of the demand estimate with other similar services, where feasible, to ascertain that the estimate is credible.