HM Treasury commissioned Mott MacDonald to undertake a study (Mott MacDonald study) to review the outcome of large public procurement projects in the UK over the last 20 years as part of an exercise to revise the Green Book3. This paper uses the data from that study to provide guidance for use by the public sector as to the appropriate level of 'optimism bias' that should be applied to different types of projects during their appraisals. The guidance is also based on optimism bias trends over time and current procurement best practice.
The study is a detailed assessment of 50 major projects (with costs exceeding £40m in 2001 prices) in total, comparing their planned and actual performance. Analysis of these projects has enabled the calculation of optimism bias levels for certain project types and an assessment of optimism bias trend over time.
Project appraisals should be carried out throughout a project life-cycle especially when the business case is updated. Several key stages in business case development (e.g. strategic outline case, outline business case, full business case) are defined by the Office of Government Commerce (Appendix C contains a figure of the OGC Business Change Lifecycle)4. Project estimates tend to be optimistic and so when carrying out appraisals, optimism in estimates of project costs, duration and benefits has to be considered. Section 1.1.1 describes the definition of optimism bias, which is used to measure optimism during appraisals.
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3 'The Green Book: Appraisal and Evaluation in Central Government' HM Treasury
4 Figure 1 of the OGC Gateway Process Business Change Lifecycle Section B2