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Toll Road ForecastingRobert Bain
RBconsult | University of Leeds
PERTH Western Australia 10 August 2015
RBconsult | www.robbain.com 2
How To Do BetterRobert Bain
RBconsult | University of Leeds
PERTH Western Australia 10 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
www.robbain.com 26
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
www.robbain.com 27
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
www.robbain.com 29
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)?
www.robbain.com 31
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
www.robbain.com 33
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”
www.robbain.com 34
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
www.robbain.com 36
• 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!!!
www.robbain.com 37
Translating Data into Information
www.robbain.com 38
Consultant Client
Information
Data
Data
Data
Data
Data
DataData
Data
Data
Data
Data
Data
The Traffic Story: Final Word
www.robbain.com 39
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
www.robbain.com 42
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]
www.robbain.com 43
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)
www.robbain.com 44
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
www.robbain.com 45
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
www.robbain.com 47
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
www.robbain.com 48
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
www.robbain.com 49
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
www.robbain.com 50
• 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?
www.robbain.com 51
• 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?
www.robbain.com 52
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.”
www.robbain.com 53
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:
www.robbain.com 56
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
www.robbain.com 59
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
www.robbain.com 62
What Are These?
www.robbain.com 64
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!
www.robbain.com 65
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?
www.robbain.com 67
