Presented to AITPM, August 2015

1. Toll Road Forecasting
Robert Bain
RBconsult | University of Leeds
PERTH Western Australia 10 August 2015

2. RBconsult | www.robbain.com 2

3. How To Do Better
Robert Bain
RBconsult | University of Leeds
PERTH Western Australia 10 August 2015

4. 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

5. What Do Our Reports Tell Us?

6. RBconsult | www.robbain.com 6
10,279 miles
Weald, Kent (pop: 1,222)

7. Sample of Recent Reviews…
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8. Sample of Recent Reviews…
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9. Sample of Recent Reviews…
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10. Sample of Recent Reviews…
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11. Sample of Recent Reviews…
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12. Sample of Recent Reviews…
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13. Sample of Recent Reviews…
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14. Sample of Recent Reviews…
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And others that the lawyers won’t let me show…

15. There are Some Standout Features
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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 future
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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 future
www.robbain.com 17

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 future
www.robbain.com 18

19. 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 forecasts
www.robbain.com 19

20. What Do Our Clients Tell Us?

21. Bain’s Clients
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22. Bain’s Clients
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23. Let’s Ask the Simple Question
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24. Let’s Ask the Simple Question
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How could
we do
better?

25. Top 10 Answers (not in priority order)
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26. Top 10 Answers (not in priority order)
• Answers focussed on:
1. Improved transparency
2. Improved understanding (+ supporting evidence)
3. Keeping it real
4. Lessons from the past
5. Working with other experts
6. Embracing volatility & uncertainty
7. Focus on a range of outcomes
8. Think like a client
9. Push information - don’t wait to be asked
10. The ‘traffic story’
…and some other (miscellaneous) themes
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27. 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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28. 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
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29. Sample Bridge Diagram
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47,921
- - - - - - - - - - -
78,397
-
20,000
40,000
60,000
80,000
100,000
120,000
Transactions(000s)

30. 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
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31. 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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32. 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 interaction
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33. 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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34. 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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35. 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!
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36. 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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37. • 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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38. Translating Data into Information
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Consultant Client
Information
Data
Data
Data
Data
Data
DataData
Data
Data
Data
Data
Data

39. 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.

40. 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.”
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41. What Are The Lawyers Telling Us?

42. 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.

43. 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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44. 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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45. 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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46. CLEM7, Brisbane (2)
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47. 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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48. 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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49. 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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50. 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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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?
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52. • 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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53. 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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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??
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55. 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

56. Where Do We Go From Here?
• Whatever, something needs to be done:
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57. 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
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58. What Does The Future Hold For Us?

59. The Future?
• Two (quick) topics…of many:
• Big Data
• Intelligent Pricing
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60. Big Data
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61. 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…”
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62. 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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63. What Are These?
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64. What Are These?
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I-15, Salt Lake City
SR-167, Seattle
SR-91, Orange County
I-15, San Diego
I-680, San Francisco
SR-237/I-880, San Jose
I-10, Los Angeles
I-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

65. 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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66. Omne Trium Perfectum

67. How To Do Better?
• Reports: 80% of the:
1. Insight
2. Intelligence
3. Value add…focussed on the forecasts
• Clients:
1. Mine volatility & uncertainty – and track it through to forecasts
2. Think client (and work backwards from there)
3. Significantly improve your narrative (the “traffic story”)
• Lawyers:
1. Forecasters are not being sued for ‘dodgy’ forecasts
2. Our professional conduct is under greater scrutiny
3. 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 management
3. Pricing will become more sophisticated – are we up to the modelling challenge?
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