Institutional changes within the public sector and the processes used to evaluate project business cases have a strong impact on the likely level of optimism or conservatism in project preparation. The key issues here are the degree of rigour in project preparation and the level of commitment to ensuring that the business case is delivered. There is strong evidence of improvement in the quality of business cases during the period covered by the study. This is strengthened by the introduction of 'gateway' approaches (such as the OGC 'Gateway Review Process' as discussed in Section 3.3) to control the development of major projects. The key features of these methodologies are:
1. Several clearly defined stages are determined covering the project life-cycle from inception, through viability, design and construction to operation of the facility or capability provided by the project.
2. Between each stage is a 'gateway' through which the project must pass before proceeding to the next stage. Typically, the gateways will align with key decision points at which the actual commitment level is increased.
3. The stages and gateways should reflect specific issues that are common to a particular project type. For example, defence equipment projects are based on the Ministry of Defence's (MoD) guidelines for Smart Procurement. The aim of Smart Procurement is to enhance defence capability by acquiring and supporting equipment more effectively in terms of time, cost and performance (faster, cheaper and better). Smart Procurement involves a gateway process developed by the MoD to help appraise and deliver new equipment projects. It includes six stages: concept; assessment; demonstration; manufacture; in-service (available) and disposal. The initial gateway for procurement takes place after the concept stage where the decision to invest in assessing the value of the defence capabilities is made. The main gateway takes place at the end of the assessment phase when the decision to invest in procuring the capabilities is made. In principle, the decision to commit to performance, time and cost is separate from actually placing a contract with the industry, which takes place after the demonstration phase (i.e. it has been demonstrated that the equipment can actually be built).
However, optimism bias remains significant throughout the project life-cycle for unique projects, those with innovation or new technology, or projects with complex interfaces. In these cases alternative solutions or changes to business processes or project goals which can reduce risk have to be considered.
It is difficult to achieve full accountability and commitment to cost, time and benefit delivery within the public sector context due to movement of key project team members and level of decision-making authority delegated to project teams and public sector culture. Under traditional procurement, with limited levels of risk transfer, this optimism bias remains at the contract award stage. The problem is accentuated in politically important projects: if it is believed that once given the go-ahead a project cannot be allowed to fail, then there remains a strong incentive for optimism bias, even if applied implicitly.
Optimism can creep in during contract negotiations as caveats to contracts are added to achieve resolution. This does not necessarily mean that value for money is not achieved, but is likely to lead to optimism in both costs and benefits to the public sector.