The optimism bias recorded for projects in several recent studies have proved that there is a tendency for project managers and project owners to underestimate costs and time, and overestimate benefits for a project.
Failure to consider and actively manage the causes of optimism bias tends to result in an accumulation of unforeseen cost and time overruns, and benefit shortfalls. However, by developing strategies for the effective management of project risk areas, it is possible to reduce the optimism bias and raise confidence levels in project estimates.
The reduction in optimism bias with time, as observed in the Mott MacDonald study, is most likely attributed to the introduction of risk management, improved procurement practices (based on greater diligence at the project definition stage), partnering, more controlled cost monitoring, value management, and the application of concurrent engineering.
The Mott MacDonald study has strongly indicated that the most important contributing factor to optimism bias was the inadequacy of the business case (e.g. project scope not clearly defined and/or stakeholders' interests not addressed). Appropriate emphasis should be applied to reviewing the project objectives, scope, specifications and definitions detailed in the business case to ensure they are fully comprehensive and address the holistic project requirements in the short, medium and long term.
The application of current industry best practices, recognised strategies to manage all project risk areas and effective project management will reduce the optimism bias recorded in future projects. This study recommends that prudent levels of optimism bias should be assumed in project costs and time estimates until good practice in procurement has been demonstrated and independently verified.