chapter  9
37 Pages

Risk and Uncertainty in Transportation Project Evaluation

All investments, private or public, are subject to risks, mainly in connection with the expected costs and benefits. The magnitude of these risks is a function of project type, size, complexity, management, and political environment. Transportation infrastructure investments are, invariably, no exception because they are quite complicated to design and implement as well as require huge sums of capital, significant portions of which are sunk costs. Moreover, the demand for transportation services varies considerably over time and space, making it difficult to predict. On the other hand, transportation investments are indivisible and, once committed to politically, legally, and financially, are largely irreversible. Hence, the risks associated with transportation investments include cost overruns, unmet schedules, lower than expected demand, significantly reduced levels of service, and, at times, financial insolvency. This reality notwithstanding, the common practice in transportation project evaluation is to forgo a comprehensive risk analysis, a decision that often leads to disastrous results.1 In part as a warning, this chapter examines a range of transportation investment risks, their measurement and integration within the overall project evaluation process.