Table 2 provides upper (U) and lower (L) bound optimism bias levels to be used when carrying out project appraisals. These U and L bound levels should be used for both traditional and privately funded projects, as both types of procurement are considered as alternatives at Gate 1 of the Office of Government Commerce's 'Gateway Review Process' (described in Section 3.3) and require effective risk management to reduce optimism bias. The rationale behind the table is described in Section 4. This paper only provides optimism bias guidance for capital expenditure (operating expenditure for outsourcing projects) and works duration due to data availability. Optimism should, of course, be considered in respect of all project estimates (i.e. costs, duration and benefits).
Table 2 Optimism Bias Guidelines
Project Type | Optimism Bias (%) 2 | |||
U | L | U | L | |
Non-standard Buildings | 39 | 2 | 51 | 4 |
Standard Buildings | 4 | 1 | 24 | 2 |
Non-standard Civil Engineering | 25 | 3 | 66 | 6 |
Standard Civil Engineering | 20 | 1 | 44 | 3 |
Equipment/Development | 54 | 10 | 200 | 10 |
Outsourcing | N/A | N/A | 41* | 0* |
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* The optimism bias for outsourcing projects is measured for operating expenditure, OPEX
2 Note that these values are indicative starting values for calculating optimism bias levels in current projects. The upper bound (U) does not represent the highest possible values for optimism bias that can result and the lower bound (L) does not represent the lowest possible values that can be achieved for optimism bias.