Robert Black, the Auditor General, said the organisation did not fully take account of risks that emerged in the early days of the project or review the business case before work began 10 years ago.

Last year it had to take over CairnGorm Mountain Limited, the debt-burdened company which ran the railway, to ensure its future.

In a review of the project yesterday, Mr Black said that, in developing a new business model, HIE “must learn from its experiences to date”.

In a series of recommendations, Mr Black says HIE, which has been involved in the project for 17 years, must fully assess and manage all the risks and constraints facing the facility, review current performance against capacity and develop a clear set of objectives with measurable outcomes for the business.

It must also provide prospective operators with a detailed analysis of the challenges, consider changes in market, environmental and financial conditions and create a sustainable and attractive business opportunity.

Mr Black also warns that, when assessing bids for the business, HIE must ensure prospective operators will offer activities that have a positive impact on the area. They should also agree to protect the “fragile and unique” environment.

The report says the funicular project was key to the regeneration of the area and was expected to deliver increased tourism and job creation. It has since attracted more paying visitors than any other local attractions.

Building costs were about £5m more than expected and the public sector has invested a total of £23m in the funicular and its operator.

HIE provided extensive support to the project and operator, and its actions between 2001 and 2008 were “effective in the short-term” but did not resolve the difficulties.

HIE acting chief executive Sandy Brady said: “Audit Scotland rightly acknowledges that the design and build of a funicular railway at high altitude in an environmentally sensitive area was a unique and complex project never been attempted before in Scotland.

“We are particularly pleased with the conclusion that the funicular succeeded in creating employment and achieving the wider economic benefits it was designed to deliver. These include triggering significant further investment, creating a year-round operation providing continuous employment and attracting tourists.

“We accept that good practice in project appraisal and management has improved significantly since the early 1990s. HIE has already addressed this issue and we are pleased with the review’s finding that our current procedures are now more rigorous in assessing and managing potential benefits and risks associated with major projects.”