There is a demonstrated, systematic tendency for project appraisers to be overly optimistic. This tendency is known as Optimism Bias - a worldwide phenomenon that affects all types of projects, including transport, in both the private and public sectors. The available evidence[1], [2] suggests that many project parameters are affected by optimism - appraisers tend to overstate benefits, and understate timings and costs, both capital and operational, particularly in the early stages of development.
To redress this tendency, practitioners should make explicit adjustments for this bias when appraising projects. These will take the form of increasing estimates of the costs and decreasing and delaying the receipt of estimated benefits. However, in current transport appraisal guidance it is only provided for cost risk adjustment. As detailed in Section 13.1, risks associated with patronage or benefits should be accounted for by applying sensitivity or scenario testing around the central case. Sensitivity testing should be used to consider uncertainties around the adjustment for Optimism Bias.
Adjusting for optimism bias should provide a better estimate of key project parameters early in the appraisal process. The application of these adjustments is designed to complement and encourage, rather than replace, existing good practice, in terms of calculating project specific risk adjustments. They are also designed to encourage more accurate costing.[1] Review of Large Public Procurement in the UK, Mott MacDonald (July 2002)
[2] Procedures for Dealing with Optimism Bias in Transport Planning, Flyvbjerg, B. (2004)
