Price Forecasting and Project Evaluation in the 1980's (includes associated papers 13347 and 13675 )

Forecasts of prices-including oil, natural gas, equipment and drilling costs, and money-affect the evaluation of all projects. The adoption of detailed forecasting procedures in the 1970's was intended to improve project evaluations in the pre-OPEC years. The practice of changing price forecasts every few months as the result of continuing price instability is costly and defeats the advantages of the forecasting process in improving project evaluation. Past price forecasts of oil, inflation, drilling, and cost of capital have been collected from public and private sources. The accuracy of forecasts since 1976 are compared with actual prices. The causes of the errors are identified, and the implications for forecasting in the 1980's assessed. The costs associated with the time of professional staffs involved in changing or redoing evaluations are also estimated.