As weaknesses in the scrutiny and appropriateness of data and modelling techniques mendaciously distort the information on which investments are approved and mask the business, service and external risks. This is why a business case must never be perceived or used as a medium for simply gaining approval. It is for the above reasons that good decisions are based on having sufficient, objective, accurate and timely data and information on programme and project costs, timescales, benefits and risks. As such, the residual use of optimism bias to measure continued uncertainties should be minimal and generally no more than 2% for a standard capital scheme.
/2795012-what-is-cognitive-dissonance-5afdb76eae9ab800364e4e48.png "optimism bias definition")
Professor Bent Flyvbjerg at Oxford University calls this strategic misrepresentation defined as the planned, systematic, deliberate misstatement of costs and benefits to get projects approved. It is for this very reason the UK government espouses that project plans should allow for optimism bias by increasing the costs and timescales estimates when information is unknown early in the lifecycle and prior to an investment decision. Depending on the organisational culture, it may be a reflection of the perceived need to present best case scenarios to have any success in achieving the required whole of life funding estimate for capital, service and maintenance. This leads to shortfalls in benefits realisation where in many cases the stated benefits in the business case were unfortunately overstated to begin with.
The companion guide, APMG-International’s Managing Benefits – Optimizing the Return from Investments also notes that psychologists and other researchers have identified a number of cognitive biases and organisational factors that impact our ability to assiduously produce accurate and reliable forecasts.
#Optimism bias definition how to#
Since this guidance describes how to successfully scope, analyse, plan, procure and manage delivery to achieve value for money and social return on investment in terms of public outcomes, services and trust. people, assets, materials, funding and services) in developing programme and project investment proposals. They provide further guidance through Better Business Cases™ for Better Outcomes using the Five Case Model that ought to be used by those accountable within an organisation using public resources (i.e. In a project environment, optimism bias is the demonstrated systematic tendency, whether unconsciously or deliberately, for project business cases to overstate forecast benefits, and understate the timescales and costs, both capital and operational including delivery complexity. To combat this, the United Kingdom Treasury developed the Green Book on how to appraise policies, programmes and projects. The Five Case Model - It’s not easy being green! The extent of the optimism bias is thus measured empirically by recording an organisation’s expectations before a project event unfolds and contrasting those with the required outcomes and forecast benefits that transpire since reality sometimes does not meet customer expectations.
#Optimism bias definition full#
This denotes the glass half full or half empty conundrum. If expectations are better than reality, the bias is optimistic if reality is better than expected, the bias is pessimistic. This optimism bias is defined as the difference between a person's expectation and the outcome that follows. Such faith helps to motivate people directing, managing and delivering a project or programme to pursue organisational (including strategic) objectives and key results. This innate confidence or attitude that something is the case is articulated by Tali Sharot of TedTalk fame, where she states that we are more optimistic than realistic. To enable progress, we need to be able to imagine alternative realities – better ones – and we need to believe that we can achieve them. It's the tendency for project portfolio management professionals to ignore lessons learned and believe that they are less likely to repeat the same mistakes or experience negative events than others and to act on that optimistic belief that “It won't happen to me!” This thinking often leads to a phenomenon called the planning fallacy in which predictions about how much time will be needed to complete a future task display an optimism bias and underestimate the actual time needed. The belief that the future will be much better than the past and present is known as optimism bias.
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