Procedures for dealing with optimism bias in transport planning. Useful links for developing appraisals department of finance. Hm treasury, green book appraisal and evaluation in central. Hmt supplementary guidance should be applied with proportionate effort in a. One of a series of supplementary guidance documents to be read with. How to value infrastructure the institute for government.
Hm treasury, green book appraisal and evaluation in. Section transport scotland the scottish government. Government, treasury guidance hm treasury, 2011 and supplementary green book guidance. Optimism bias is obviously one aspect, flyvbjerg refers tongue in cheek to strategic misrepresentation or lies the project proponents want to see a project proceed. Abstract comprises supplementary guidance to the green book on transport infrastructure projects, discussing the underlying causes and institutional context for optimism bias in british transport.
Lets be courageous, part 2 hs2 and the environment. The green book supplementary guidance on optimism bias, hm treasury 5. Economic analysis and investment priorities in swedens transport sector. Procedures for dealing with optimism bias in transport. This tendency has been studied in academic literature for years, but the cost overruns of numerous large megaprojects across the world has helped focus attention on this issue and. Postproject optimism bias is an overly optimistic belief that a project will deliver better business benefits than what was planned or that can be proven.
The approach to calculating optimism bias described in the supplementary green book guidance hm treasury 2003b, p. To redress this tendency appraisers should make explicit, empirically based adjustments to the estimates of a projects costs, benefits, and duration. Supplementary guidance to the green book on estimates for a projects costs, benefits and duration in the absence of robust primary evidence. Hm treasury, supplementary green book guidance, 2003. Procedures for dealing with optimism bias in transport planning, flyvbjerg, b. The green book supplementary guidance on optimism bias suggests that the upper bound on optimism represents a starting point, and the contributory factors to the ob uplift are then assessed. Copies of this guidance and of the green book and of related supplementary guidance can be accessed and downloaded from the green book pages of. These microsoft excel files contain model spreadsheets designed to facilitate optimism bias calculations in accordance with current dof requirements and should be used in conjunction with section 2. Tso note explaining changes made to the green book in july 2011. Comprises supplementary guidance to the green book on transport infrastructure projects, discussing the underlying causes and institutional context for optimism bias in british transport projects and highlighting some possibilities for reducing it. Optimism bias psychology wiki fandom powered by wikia.
Copies of this guidance and of the green book and of related supplementary guidance can be accessed and downloaded from the green book pages of hm treasurys public web site at. Treasury green book is the hm treasury guidance for public sector bodies on how to appraise proposals before committing funds to a policy, programme or project. Flood and coastal erosion risk management business case. The orange book, management of risk principles and concepts, hm treasury 20 6. See table 6 entry for rail and 90% percentile in the report procedures for dealing with optimism bias in transport planning guidance document, flyvbjerg, b in association with cowi consultancy group, june 2004. This includes overestimating the likelihood of positive events and underestimating the likelihood of negative events. Optimism bias adjustment optimism bias ob defined in hm treasury green book supplementary guidance as. Pdf curbing optimism bias and strategic misrepresentation. Transportation planning 2,467 words exact match in snippet view article find links to article occupational standards for transport plan green book supplementary guidance.
Planning fallacy causes and solutions for project expectations. In fact it should be regarded simply as a starting point for dealing with appraisal optimism. The hm treasury is the uks economics and finance ministry, responsible for formulating and implementing the governments financial and economic policy. Hm treasury, supplementary green book guidance, 2003, p. However, pages 5758, which deal with the valuation of nonmarket goods. The green book supplementary guidance on optimism bias suggests that the upper bound on optimism represents a starting point, and the contributory factors to the ob uplift are then assessed in terms of whether they are mitigated. Procedures for dealing with optimism bias in transport planning guidance document. Optimism bias and strategic misrepresentation are both deception, but where the latter is intentional, the. Optimism bias typically results in cost overruns, benefit shortfalls, and delays, when plans are implemented. Optimism bias supplementary green book guidance the.
Assessing options stn01 economic appraisal stn02 optimism bias stn03 the rapid assessment of damages rad tool stn04 the stns provide more detailed advice on the practical application of the better business cases. Fhwa center for innovative finance support p3 toolkit. One of a series of supplementary guidance documents to be read with the green book. The green book appraisal and evaluation in central government treasury guidance london. The effect of optimism bias on the decision to terminate.
Uk nda application of reference class forecasting in. Legal issues and management financial management publisher history. Treasurys green book guidance on appraisal of policies, programmes and projects, which it should be read in conjunction with it. Green book supplementary guidance on optimism bias supplementary guidance to the treasury green book on estimates for a projects costs, benefits and duration in the absence of robust. Optimism bias is the tendency of parties involved in the development of financial models to overestimate income or underestimate expenses of a capital project. Or professionals are just optimistic about the future and their expertise and experience. Before the contributing factors can be managed they need to be identi. Curbing optimism bias and strategic misrepresentation in planning. Recommended percentage adjustments to account for optimism bias. Accounting for optimism bias in this way is an effective approach towards managing both expectations and costs relating to chosen interventions. An adjustment has therefore been made to the optimism bias based on the approach provided in supplementary green book guidance published in april 20. This edition of the green book is the first which has been preceded and helped by a consultation. In addition to the main guidance document, the green book includes additional documents as supplementary guidance. Construction journal februarymarch 2016 by rics issuu.
Review of large public procurement in the uk, mott macdonald july 2002 7. It is further confirmed that both postproject and inproject optimism biases have significant effects on. Supplementary green book guidance on optimism bias 2. Overocming optimism bias in project decisionmaking. The files include an explanation of how to use them. The uk government explicitly acknowledges that optimism bias is a problem in planning and budgeting and has developed measures for how to deal with optimism bias in government hm treasury 2003. The uk government explicitly acknowledges that optimism bias is a problem in planning and budgeting and has developed measures for how to. While the results have shown widespread support for. The full text of the 2003 her majestys treasury hmt green book. Supplementary guidance to the hm treasury green book on appraisal and evaluation in central government. Discounting intergenerational wealth transfers and social discounting. As practiced today, it is a collaborative process that incorporates the input of many stakeholders including various government agencies, the public and private businesses. Economic analysis and investment priorities in swedens. This guidance sets out the contributory factors to the upper bound optimism bias of 44% and the justification for adjustment.
Transportation planning is the process of defining future policies, goals, investments, and designs to prepare for future needs to move people and goods to destinations. List of green book supplementary guidance 107 glossary 109 bibliography 115 index 121. Procurement in the uk, mott macdonald 2002, available at. The green book therefore constitutes binding guidance for departments and executive agencies. Supplementary green book guidance optimism bias means that contributory factors are not mitigated at all, 1.
Techniques to quantify risk and uncertainty optimism bias the adjustments can be based on past empirical experience of similar projects and should be reduced at different stages of the business case development as progressively better estimates are made. See the hm treasury supplementary guidance on optimism bias for a detailed explanation of these steps including worked examples. Pdf procedures for dealing with optimism bias in transport. Optimism bias supplementary green book guidance, hm. As outlined by iuk and hmt green book supplementary guidance on financial cost. Procedures for dealing with optimism bias in transport planning guidance document publication year 2004 document status latest version of document. Discounting 101 list of green book supplementary guidance 107. Construction contingencies in infrastructure isurv. Along with the illusion of control and illusory superiority, it is one of the positive illusions to which people are generally susceptible. Uk nda application of reference class forecasting in optimism. It is further confirmed that both postproject and inproject optimism biases have significant effects on the escalation of commitment to failing projects. Flood and coastal erosion risk management business case guidance 6 annex a contains three supplementary technical notes stns on.
The consultation process has proved invaluable in shaping the final guidance. Optimism bias is defined by the treasury as the demonstrated, systematic, tendency for project appraisers to be overly optimistic about the chances of schemes going over budget or being delivered late. These include specific chapters on topics such as optimism bias, environmental impacts, and transport. Curbing optimism bias and strategic misrepresentation in. These guidance books specifically address optimism bias about four project parameterscapital costs, works duration, operating costs, and underdelivery of benefits hm treasury, 2011, p. Jan 01, 2008 optimism bias and strategic misrepresentation are both deception, but where the latter is intentional, the. Optimism bias is the demonstrated systematic tendency for people to be overly optimistic about the outcome of planned actions. Optimism bias supplementary green book guidance publication year 2003 document status.
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