This report looks at a particularly persistent risk management problem - the difficulties caused for government projects by unrealistic expectations and over-optimism.
Initiating projects on the basis of unrealistic assumptions is not new. It is a long-standing problem widely recognised by public sector managers and covered in HM Treasury guidance. Yet all too frequently over-optimism results in the underestimation of the time, costs and risks to delivery and the overestimation of the benefits. It undermines value for money at best, and in the worst case leads to unviable projects.
This does not mean that government should shy away from doing innovative and risky things. But decision-makers need to be confident that investment decisions are based on realistic estimates and assumptions, that there are clear plans for mitigating known risks and that matters about which there is inherent uncertainty have been identified. With a greater level of understanding, government can be creative and seek innovative approaches to delivery.
Government is having to deliver more with fewer resources. It is moving to strengthen project delivery skills and to increase the capacity for independent challenge by bringing non-executives on to departmental boards. We support these actions, but alone they are not enough.
Over-optimism, whether unconscious or deliberate, must be tackled. Decision-makers should be intolerant of optimism bias in the planning and delivery of projects. This is about more than changing processes, although there is considerable scope for improvement. At the heart of the issue are also organisational behaviours and incentives and the strength of personal accountability. Government needs to have a better understanding of how these contribute to over-optimism.
Our back catalogue illustrates the consequences of over-optimism and we have identified some important contributory factors. This document is intended to raise awareness of the issues and prompt discussion and action to address the underlying causes.