aitpm toll road forecasting
TRANSCRIPT
Toll Road ForecastingRobert Bain
RBconsult | University of Leeds
ADELAIDE South Australia 7 August 2015
RBconsult | www.robbain.com 2
How To Do BetterRobert Bain
RBconsult | University of Leeds
ADELAIDE South Australia 7 August 2015
How To Do Better
• What does our product offering (our reports) tell us?
• What do our clients tell us?
• What do the lawyers tell us?
• What does the future hold for us?
www.robbain.com 4
What Do Our Reports Tell Us?
RBconsult | www.robbain.com 6
10,279 miles
Weald, Kent (pop: 1,222)
Sample of Recent Reviews…
www.robbain.com 14
And others that the lawyers won’t let me show…
There are Some Standout Features
• 80-90% of the report is focussed on the base-year model
• 10-20% of the report is focussed on the future (ie. forecasts)
Time to re-think the 80:20 rule?
• 80-90% of the report focussed on the future?
• 80-90% of the report’s:• insight• intelligence, and• value-add
• …focussed on the futurewww.robbain.com 16
There are Some Standout Features
• 80-90% of the report is focussed on the base-year model
• 10-20% of the report is focussed on the future (ie. forecasts)
Time to re-think the 80:20 rule?
• 80-90% of the report focussed on the future?
• 80-90% of the report’s:• insight• intelligence, and• value-add
• …focussed on the futurewww.robbain.com 17
There are Some Standout Features
• 80-90% of the report is focussed on the base-year model
• 10-20% of the report is focussed on the future (ie. forecasts)
Time to re-think the 80:20 rule?
• 80-90% of the report focussed on the future?
• 80-90% of the report’s:• insight• intelligence, and• value-add
• …focussed on the futurewww.robbain.com 18
There are Some Standout Features
• 80-90% of the report is focussed on the base-year model
• 10-20% of the report is focussed on the future (ie. forecasts)
Time to re-think the 80:20 rule?
• 80-90% of the report focussed on the future?
• 80-90% of the report’s:• insight• intelligence, and• value-add
• …focussed on the forecastswww.robbain.com 19
What Do Our Clients Tell Us?
Top 10 Answers (not in priority order)
• Answers focussed on:
1. Improved transparency2. Improved understanding (+ supporting evidence)3. Keeping it real4. Lessons from the past5. Working with other experts6. Embracing volatility & uncertainty7. Focus on a range of outcomes8. Think like a client9. Push information - don’t wait to be asked10. The ‘traffic story’
…and some other (miscellaneous) themes
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Client Feedback
• Improve transparency
• Enhanced rigour in terms of documenting, explaining & justifying • How the model works• Input data• Key assumptions• Model weaknesses
• Write in English• “too much mathematical and technical gobbledygook in reports without
explaining what it actually means”
• Use breakout panels to provide illustrated (worked) examples
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Client Feedback
• Improve understanding
• Take care with cause-and-effect• Effects may be caused by factors other than the seemingly obvious
• Use comparisons, benchmarks and independent sense-checks• “An imperfect benchmark is better than no benchmark at all”
• “Consultants overuse simulation and underuse empirical analysis”
• Bridge diagrams (‘waterfall charts’) are essential• Provide logical, intuitive build-up (by driver) of traffic growth
• Break-out growth by contributions eg. population, employment, real income growth, car ownership, network effects, impact of tolls etc.
• Excellent way to really understand a forecast• Allows risk to be examined and understood on a tiered basis
• Rather than looking at risk on a bucketed, collective, traffic growth basis www.robbain.com 28
Sample Bridge Diagram
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2014
County Em
ploymen
t
Industrial
Producti
on
Retail a
nd Food Sa
les
Congesti
on
County Em
ploymen
t - Lei
sure
National
Employm
ent
US Exp
orts
Retail T
rade
Diesel
Prices
Gas Pric
esTo
lls2081
-
20,000
40,000
60,000
80,000
100,000
120,000
47,921
- - - - - - - - - - -
78,397
Tran
sacti
ons (
000s
)
Client Feedback
• Keep it real
• Remain respectfully sceptical about models
• Don’t obsess on the mechanics of the model• …or the creation of the modelling machine (to the exclusion of everything else)• Give me real-world insight• Leave your desk and get out there!
• Don’t become model-blind
• Stop thinking that
• a patchwork of old O-Ds,• cobbled-together demographics and • a handful of traffic counts
• …gives anything other than an imprecise snapshot of traffic and travel behaviour www.robbain.com 30
Client Feedback
• Lessons from the past
• Former growth rate drivers may not persist• eg. multiples may have been impacted by non-recurring events• Multiples may evolve through the forecast horizon
• Explain (don’t dismiss) anomalies in historic data• Helps to understand risk• Helps to understand upsides/downsides
• …if anomalies (or their underlying causes) were to reoccur
• What can we determine from past economic cycles?• Difficult (impossible) to forecasts, but• Dangerous to ignore!
• Can your model predict the past (or the present)?
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Client Feedback
• Working with other experts
• Think team
• Early identification of weaknesses/gaps in knowledge sets
• Don’t leave this to the end
• Be proactive
• Are you recommending other (eg. specialist) independent advisors
• Economists?• Industry/commodity specialists?• Freight experts, etc.?
• Ensure seamless work-stream interactionwww.robbain.com 32
Client Feedback
• Embracing volatility and uncertainty in data inputs
• Don’t hide or mask it
• Don’t flatter it (eg. thru conveniently misspecified MC simulation)• “Don’t show me unrealistically tight confidence intervals”
• Mine it - and explicitly track it through to forecasts• What are the implications for forecasts and reliance?
• This is where a lot of time should be spent
• Show me the impact of alternative - yet still plausible - input values
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Client Feedback
• Focus on a range of outcomes
• And show me that range (not just a single curve)
• Construct realistic and meaningful sensitivity tests
• Based on what might actually happen
• …rather than randomly adjusting variables by ±10%
• “that’s diagnostic testing, not sensitivity testing”
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Client Feedback
• Think like a client
• Put yourself in my shoes
• Think about questions I need to field internally• …and how to address them
• Be aware of the consequences of your work ($m’s)
• Early disclosure of anything I might view as a conflict-of-interest
• Exception = risk appetite (don’t overlay your own)
• We don’t want conservative forecasts, we want most-likely ones
• We’ll apply our own risk appetite, thanks!www.robbain.com 35
Client Feedback
• Be proactive. Push information to me
• Don’t always wait to be asked (the ‘pull’)
• Send me periodic bullet point updates
• Keep me abreast of major issues
• Give me notice/warning of bottlenecks & problems
• …so that I can respond in advance
• Think of imaginative ways to present information
• Diagrams, charts, summaries, illustrations, worked examples, case-studies
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• The traffic story• Numbers are good (and important)
• …but I need the accompanying narrative (“a story that makes sense”)
• What are the defining characteristics of the area - and how do these translate into trip-making and travel patterns?
• How will the study area develop? What really drives growth?• What are the key movements?• Where will people be travelling from/to: who, what, how, when and why?• What are travellers’ preferences/sensitivities?• What is their choice set?
• Using surveys & other data sources you can provide me with information• They’re not just feedstock for your model
And the Big One!!!
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Translating Data into Information
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Consultant Client
Information
Data
Data
Data
Data
Data
DataData
Data
Data
Data
Data
Data
The Traffic Story: Final Word
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Supporting stories convey information very well. It’s the story that clients repeat and reflect on once the traffic expert
leaves the room.
Miscellaneous Feedback
• Other recurring themes:
• “When projects are so different, why do consultants simply wheel-out the same methodology?”
• “Insist on a new chapter: Why could this project be a success and why could it fail?”
• “Concentrate on the competition as much as the asset itself”
• “Why don’t consultants undertake self-funded research to contribute to industry knowledge? It would give them a real competitive edge.”
www.robbain.com 40
What Are The Lawyers Telling Us?
Toll Road-Related Litigation
• Lane Cove Tunnel, Sydney
• CLEM7, Brisbane (x2)
• Airport Link, Brisbane (x2)
• American Roads, US
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Note: the following slides have been compiled from public information.
Lane Cove Tunnel, Sydney
• AMP v Parsons Brinckerhoff• No. 2009/290489
• Claim: $144m • $80m for initial investment• $64m in interest
• Progress:• Case settled in September 2014• Settlement reported to be $50m-$100m
• Basis of Claim• Misleading and deceptive conduct (Trade Practices Act)• [forecasts were ‘reverse engineered’ to win the bid]
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CLEM7, Brisbane (1)
• Hopkins & Anor v AECOM Australia & Rivercity• RiverCity class action• NSD 757/2012
• Claim: $150m + interest
• Progress:• Commenced May 2012• Scheduled for trial 29 August 2016
• Basis of Claim:• AECOM’s forecasts in PDS (relied-upon by investors) were defective, misleading and
made without reasonable grounds• Issuing a defective PDS is a breach of the Corporations Act 2001 (s1022B)
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CLEM7, Brisbane (2)
• RCM Finance v AECOM• NSD 678/2012
• Portigon v AECOM• NSD 697/2012
• Claim: $1.68bn
• Progress:• SEC filings report that RCM Finance and Portigon v AECOM have settled• Class action (previous slide) “remains pending”
• Basis of Claim• AECOM made representations regarding its forecasts that amounted to• …false, misleading & deceptive conduct under the Trade Practices Act
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Airport Link, Brisbane (1)
• Bulense Holdings v Arup• Brisconnections class action• NSD 770/2014
• Claim: $50m
• Progress:• Class action commenced July 2014• Settled for $13m in July 2015
• Basis of Claim:• Arup’s forecasts in PDS were defective, misleading and made without
reasonable grounds• Issuing a defective PDS is a breach of the Corporations Act
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Airport Link, Brisbane (2)
• Brisconnections v Arup• NSD 521/2014
• Claim: Over $1bn
• Progress:• Ongoing
• Basis of Claim:• Receivers allege misleading and deceptive
conduct and negligent misstatement under the Trade Practices Act
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American Roads, US
• Syncora v Alinda Capital, American Roads, Macquarie Securities and John S Laxmi• Index No. 651258/2012 (NY Sup.)
• Claim: Damages to be determined at trial
• Progress:• Case has survived a motion to dismiss• Currently in the middle of fact discovery
• Basis of Claim:• Plaintiff alleges that Macquarie engaged in a fraudulent scheme to manipulate
the forecasts supporting a bond offering on a portfolio of toll road assets
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What Does It All Mean?
• People are not being sued for inaccurate forecasts per se• Not, by itself, a cause of action to sue
• Emerging themes:• Misleading and/or deceptive conduct• Misleading and/or deceptive statements• Omissions • Negligence? Negligent misstatement? [requires duty-of-care]• Content and form of required disclosure
• Key issues for practitioners:• Did the forecaster act in accordance with competent professional practice?• Did the forecaster have reasonable grounds for their forecasts (at the time)?
• Irrespective of whether they turn out to be right or hopelessly wrong• Be aware of who your audience is (for forecasts) - not always obvious from the start• Tread carefully if you are adjusting inputs/assumptions based on client directions
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• What about honest mistakes?
• Depends on the jurisdiction
• Honesty is generally not a defence
• You may be liable if you were stupidly honest
• …and your actions fell below the standards reasonably expected of a professional transportation forecaster
• In practice, lawyers often avoid claims of dishonesty
• Difficult to prove
• May provide an opt-out for insurers (fraud exclusions)
• …reducing the forecaster’s ability to pay compensation
What Does It All Mean?
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• What about honest mistakes?
• Depends on the jurisdiction
• Honesty is generally not a defence
• You may be liable if you were stupidly honest
• …and your actions fell below the standards reasonably expected of a professional transportation forecaster
• In practice, lawyers often avoid claims of dishonesty
• Difficult to prove
• May provide an opt-out for insurers (fraud exclusions)
• …reducing the forecaster’s ability to pay compensation
What Does It All Mean?
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What Does It All Mean?
• On the record:
• “…judge Michael Pembroke had raised concerns…about the way in which the traffic forecast reports were drafted including a lack of explanation for the basis of the assumptions and conclusions reached.”
• Off the record:
• “Something…in your book resonated with me (base-case assumptions should be consolidated in a single table) and perhaps a significance level applied to those that are most important.”
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Where Do We Go From Here?
• Industry Response?
• Update our Terms & Conditions?
• …but unilateral action means that we can be picked off one-by-one
• Lobby the professional bodies (collective action)?
• Clarify, highlight (and strengthen) our professional responsibilities • to our peers• to society• the public…
• A new code-of-conduct emphasising obligations, integrity etc.
• …and client responsibilities??
www.robbain.com 54
Where Do We Go From Here?
• Industry Response?
• Update our Terms & Conditions?
• …but unilateral action means that we can be picked off one-by-one
• Lobby the professional bodies (collective action)?
• Clarify, highlight (and strengthen) our professional responsibilities • to our peers• to society• the public…
• A new code-of-conduct emphasising obligations, integrity etc.
• …and client responsibilities??
www.robbain.com 55
Where Do We Go From Here?
• Whatever, something needs to be done:
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Just to Recap…
Key issues for practitioners:
1. Did the forecaster act in accordance with competent professional practice?
2. Did the forecaster have reasonable grounds for their forecasts (at the time)?
• Irrespective of whether they turn out to be right or hopelessly wrong
3. Make all of your assumptions transparent
4. Be aware of who your audience is (for forecasts) - not always obvious from the start
5. Tread carefully if you are adjusting inputs/assumptions based on client directions
www.robbain.com 57
What Does The Future Hold For Us?
The Future?
• Two (quick) topics…of many:
• Big Data
• Intelligent Pricing
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Big Data
• A coming together of:
• GPS-connected mobile phones• SatNavs• Walking & cycling apps• Bus + truck tracking• ANPR• Public transport smartcard use• Intelligent traffic signal systems• Automatic traffic counters• etc.
• “Big data clearly offers the opportunity…”www.robbain.com 61
Mobile Phone Data: View from the UK
• Lots of promises
• But (relatively) few practical applications?• Lots of university people running around, crunching data, preparing maps
• But still working out what (in practice) could/can be done with the data• Lots of confirmation-bias (believers telling other believers that this is the future!)
• A sector in ‘sit-back-and-wait’ mode
• With large clients investing heavily (HE, TfL), why not let the ‘big boys’ sort out the teething problems?
• …then the technology will become commoditised• …then we’ll jump in
• Key question
• Use ‘big data’ to do (or replace) what we already do?• Just cheaper (really?) or more up-to-date or better coverage
• Or use it to do new things• Support tour modelling, for example
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What Are These?
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I-15, Salt Lake City
SR-167, Seattle
SR-91, Orange CountyI-15, San DiegoI-680, San FranciscoSR-237/I-880, San JoseI-10, Los AngelesI-110, Los Angeles
I-10 + I-45S + I-45N + US59S + US59N + US 290, Houston I-95, Miami
I-25, Denver
I-85, Atlanta
I-35W + I-394, Minneapolis
I-495, N Virginia
Priced Managed Lanes
• Characterised by:
• Active management of highways• Better utilisation of existing assets/to achieve specific policy objectives
• Management techniques include (in isolation/combination)• Eligibility• Access control• Pricing
• Pricing can be• Variable• Dynamic (adjusting every 3 minutes!)
• With electronic charging, changing price has never been so easy
• Now there’s a modelling/forecasting challenge!
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Omne Trium Perfectum
How To Do Better?
• Reports: 80% of the:1. Insight2. Intelligence3. Value add…focussed on the forecasts
• Clients:1. Mine volatility & uncertainty – and track it through to forecasts2. Think client (and work backwards from there)3. Significantly improve your narrative (the “traffic story”)
• Lawyers:1. Forecasters are not being sued for ‘dodgy’ forecasts2. Our professional conduct is under greater scrutiny3. Need to clearly lay out our responsibilities (and those of our clients?)
• The Future:1. Using new techniques & technologies to do the same things (or new/different things)??2. Accelerating industry focus on improved/active asset management3. Pricing will become more sophisticated – are we up to the modelling challenge?
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