3.5. Demand Analysis
| Demand assessment is a key input to the financial analysis. It is useful to envisage as many scenarios as practically possible, as this is one of the reasons for project failure post implementation. |
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| PROJECT | Delhi Gurgaon Expressway The expressway currently carries 200,000 passenger car units per day. The design of the project was complex with nine flyovers, four underpasses, two foot over-bridges, and three toll plazas located in close proximity to densely populated areas. The project experience clearly demonstrates the impact of land use development which has been more intense than anticipated. The traffic study did not take into account the higher than expected economic growth in the past decade which allowed Gurgaon to accelerate its land use development. Also, there was a 10 year time gap between the traffic study and the opening of the road which rendered the initial estimates outdated. As a consequence, the developed capacity of the Gurgaon expressway remains insufficient which is demonstrated by the frequent traffic jams and long queues at the toll booths. Use of scenarios and simulations during project design could have mitigated the negative consequences e.g. defining a high-growth scenario which would assume a high economic growth and a more intense land development and where capacity would be designed based on the highest possible estimates. Source: http://toolkit.pppinindia.com/ports/module3-rocs-dge1.php?links=dge1 | |
It is useful to assess the demand for the project over its lifecycle. For instance, in a greenfield project, demand during construction is not known. Upon commissioning the new infrastructure, during the initial years the demand could still be uncertain.
These initial years are called the ramp up period. After the ramp up period, demand will normally reduce. At this stage, people would have been accustomed to the new service offering and the market will mature and follow the economic growth rates more closely.
In the long run it is advisable to be cautious with too optimistic demand forecasts. Markets normally consolidate. Competing alternatives are likely to increase as they see an opportunity in the steady growth rates upon maturing. It makes sense to see a reduced growth rate in the long run in comparison with the ramp up period and maturing phase. Assuming reduced market growth rates in the long run also provide a buffer for periods of economic stress.