Optimism Bias

Quantitative assessments throughout the procurement of the project will often use similar capital costs for both the CPAM and the NPD assessment. Since the key area which Optimism Bias assessed (the systematic tendency of evaluators to underestimate time and costs and overstate benefits) will affect both investment routes if similar cost inputs are used. It is generally expected that at the Stage 3 Procurement Level assessment, Optimism Bias will be higher for the CPAM option. However, it is recognised that contractual arrangements can be put in place under conventional procurement that provides NPD type protections to mitigate some time and cost overruns (e.g. Design and Build contracts). However, generally Procurement Level Optimism Bias should be significantly greater for the Conventionally Procured option due to the contractual structure of the NPD.

Figure 7: CPAM and shadow bid model step 2: Incorporation of risk and Optimism Bias into quantitative assessment