As defined by the Green Book, adjustments for Optimism Bias should be empirically based (e.g. using data from past projects or similar projects elsewhere) and adjusted for the unique characteristics of the project in hand. The level of Optimism Bias is proposed by the practitioners in line with Green Book guidance and reviewed by the Scottish Government and/or Transport Scotland. The Government and/or Transport Scotland comments but ultimate responsibility for setting the level of Optimism Bias lies with the practitioner. In reviewing the level of optimism bias, one of the factors that Transport Scotland considers is how comprehensive, how well‑managed and how realistic the QRA and Risk Management strategy are.
In transport, the recommended Optimism Bias adjustment factors have been derived from a general Mott McDonald study (2002) into the size and causes of cost and time overruns in large UK procurement and the transport specific research produced by Bent Flyvberg (2004) (a slightly different position is adopted for rail projects and this is discussed below). The recommended uplift factors refer to cost overruns calculated in constant prices and should be applied to investment costs, including the allowance for the expected value of risk. This is illustrated by the following formula (the conceptual reasons for Optimism Bias apply equally to spot cost and risk assessment, hence the reason for applying OB multiplicatively):
Risk and Optimism Bias adjusted cost = (Base cost + Risk Adjustment)*(1 + Optimism Bias factor)
The term Base Cost refers to all capital investment costs as defined in Section 12.2. Optimism Bias Factors are given below in Section 13.3.3.3.
Practitioners should apply the four-step process as outlined below. This is consistent with DfT guidance and is based on the principles of the Green Book, tailored to the requirements of transport appraisal. The four steps of the process are as follows:
