A system dynamics-based method for demand forecasting in infrastructure projects: A case of PPP projects

Concession contracts are one of the most popular PPP arrangements. However, there are still a few problems regarding the successful implementation of such arrangements, such as estimating a realistic figure for the demand of services offered by the facility. Lake of demand, or demand variation, is a widespread practice when developing infrastructure projects. In the case of concessions, such practices are the origin of significant risk as the forecasted demand is a key variable in the financial and economic evaluation of any PPP project that needs to be accurately identified and then managed. Demand forecasting is a complex and dynamic process, as several inter-related qualitative and quantitative factors affect demand. This paper proposes a system dynamics-based method in which different factors affecting demand are considered and modelled holistically. The system dynamics concept has been employed to build up a set of cause-effect diagrams which will finally be incorporated to develop a conceptual demand model. This model establishes the causal structure of the demand system, which will help to portray and define the impacts of different factors on demand volume.