Project Finance for Business Development

CHAPTER 8Project Finance ForecastingEnsuring Sound Decision Making

Forecasts are the foundation of all planning—whether implicit or explicit, qualitative or quantitative, objective or subjective, based on simple algorithms or complex statistical models—and are used in decision making. Because forecasts are used in planning and decision making they are of crucial importance in large capital investment projects to determine economic viability and project financeability. In Chapter 3 the record of project financing indicates that project failures are frequently due to forecast failures. To address this problem, we use strategic decision forecasting which is a method developed by Long Range Planning Associates to develop long‐term forecasts for large capital investment project decisions.

Forecasting for infrastructure projects requires strategic‐decision forecasts that are 15 to 30 years out, that are collaborative, and integrative of qualitative and quantitative methods. The focus of strategic forecasting is on modeling future project operations, uncertainty and risk identification and mitigation, and scenario development and planning to generate cost and revenue forecasts. Megatrend, industry trends, economic environmental‐factor analysis, industry and competitive analysis, demand analysis, and forecast ownership and process management are of equal importance to generate the best possible forecasts.

In large project development, nobody knows with certainty what may happen 10 to ...