If You Build It.: A Cost-Benefit Analysis of Tourism Development

Government Finance Review, August 1995 | Go to article overview

If You Build It.: A Cost-Benefit Analysis of Tourism Development


Tourists - and the dollars they spend - can provide a boost to a community's local income and government revenues. Allowing communities to benefit from an area's natural and cultural attractions, tourism can be a viable economic development strategy. Before undertaking a tourism development program or adding facilities to increase tourist potential, however, officials of small governments should ask the question, "Will tourism do for this community what we want done?" Cost-benefit analysis is one method to determine if a plan for tourism development should be pursued or modified or abandoned. This article, summarizing reports published by the Western Rural Development Center (WRDC), discusses how to conduct a cost-benefit analysis for tourism. The method is illustrated with an analysis of a five-year tourism development plan for a city of 25,000.

Gathering the Data

An inventory of support services utilized by tourists will provide essential information about the need to increase facilities and services to accommodate anticipated increases in tourism levels and may be useful in advertising and marketing. It is important to ascertain whether both public and private support services must be expanded. Public support services might include police, sewer, water, restrooms, streets, medical facilities, rescue systems, parks, solid waste services, and campgrounds. Private support services might include guide service, hotel and motel rooms, restaurants, and transportation. Special needs of visitors, such as disability and accessibility requirements, language barriers, and cultural differences, also should be considered in assessing need for additional attractions and facilities. If the capacity does not meet present or future demands, expansion of those facilities that are in short supply must be taken into account as a cost of tourist development. The inventory process includes determining the present level of facilities and associated capacity, estimating the quantity of tourists and type (i.e., en-route or overnight), and estimating the increase in facilities and services needed. Officials then should consider methods of financing the additional facilities and services that will be required and develop a budget and schedule for these provisions. Inventories are not one-time affairs; rather, continual inventories are essential measures of the success or failure of tourism.

To estimate the tourist potential of existing attractions, the level of visitation during previous years can be a useful measure. Using the average annual visits and the peak-day visits for each year - preferably for the last 10 years - the percentage growth or decline for each year's average and peak is determined, with any special and outside events that might have affected visits that year noted, such as a recession or a world's fair. The average growth rate for the past years is calculated with yearly growth rates modified to remove the effects of special or outside events. The average then can be used to estimate potential visit figures for each year ahead in the planning horizon, adjusting the levels for any special or outside events expected in future years.

The number of visitors to a new attraction, for which there are no current data, can be estimated using the current visit levels of other tourist areas with similar types of attractions, target markets, and competition. Adjustments can be made to reflect differences in size of potential target markets, nearness and convenience of target markets, availability of competitive areas to the target markets, "drawing power" of the area's attractions, and costs of the target markets of visiting the areas.

A WRDC report describes four methods that can be used to estimate total dollars spent by visitors, each with advantages and disadvantages: diaries, exit interviews, mailed questionnaires, and surveys of tourist-related businesses. After determining how much tourists spend, the anticipated increase in types of tourists (day, overnight, or camping visitor) can be multiplied by the expenditures expected for each type to estimate the sales resulting from tourism development.

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