4.4 - Sensitivity testing of the demand estimates

Introduction

The demand estimates will involve making assumptions and estimates, which may involve uncertainty or be subjective in nature. Assessments of the sensitivity of the demand estimates to critical assumptions shall be undertaken on the preferred proposal option.

Required sensitivity tests

There are two sensitivity tests that should be performed on the demand estimates.

• Differing levels of user charges.
• Estimated user demand levels, including growth rates, and the assessment of diverted road trips and generated demand.

Each of these is described below.

User charges

Some testing on the effect of varying user charges on the demand for the proposed service and on service provider revenues must be done in developing the demand forecast.

The final evaluation must report the user charge levels that:

• maximise the service provider's revenue from user charges
• produce the highest economic return as indicated by the Benefit Cost Ratio
• maximise welfare (the fare level at which the PV of road user benefits plus PT user benefits minus costs is maximised).

The evaluation must state any practical or institutional limits on user charges.

Demand levels

If significant changes in user charges are envisaged in the proposal, the use of a constant elasticity could result in gross errors. Where significant changes in user charges are envisaged, the elasticity values should be varied and the effect on user demand, the funding gap, the proposal benefits, and the BCR reported.

In addition, upper and lower bounds of the estimated growth rates for the service should be established and the effect of these on user demand, the funding gap, the proposal benefits, and the BCR reported.