Annex A5: Uncertainty, Optimism Bias and Risk
A5.1 This Annex covers the Green Book approach to uncertainty, optimism bias and risk, covering:
risk management and categories of risk
the interaction between risk and optimism bias
reducing optimism bias
project or programme contingency and optimism bias
presentation of optimism bias in appraisal results
A5.2 The focus is on the application of optimism bias and quantification of risk, in the context of uncertainty about costs, benefits and time taken to deliver interventions. The approach set out here primarily applies to the appraisal and management of projects and programmes, usually associated with new public spending, but the principles are applicable to government appraisal more widely. Green Book supplementary guidance provides more information on the treatment of uncertainty and risk when valuing infrastructure.