How can you reduce the impact of optimism bias?

If optimism bias is known to happen in major projects, how can this be resolved? Academics have suggested some ways of overcoming this problem.

In her 2008 work, Trapenberg Frick presented a number of options to help reduce the impact of optimism bias.

One suggestion involved using a tool, called 'optimism bias uplift' (Trapenberg Frick, 2008) which means preparing for inaccuracy in forecasting to help with cost estimation. To create the optimism bias uplift, you apply reference class forecasting, which means using historic examples to predict future outcomes. You will explore this in more detail at the end of this lesson. At this stage let's focus on the idea of uplift.

Uplift means using learning from similar projects to establish a contingency sum, which you add to a project's estimated costs. In major projects, you also need to establish a contingency schedule uplift, ie make provisions for extending the project's schedule. This allows you to address the political impact of budget and schedule inaccuracy.

This would help project managers to be more realistic in estimating and assessing the time needed to complete a project. This “more realistic timeframe could be developed based on other high-profile major projects to allow for adequate public involvement up front and throughout implementation as construction complexities surface” (Trapenberg Frick 2008, p.258). Project appraisals would account for a “cost uplift” andan explicit “schedule uplift”.

The UK Government provides guidance on how to deal with optimism bias in major projects in the document: Her Majesty's Treasury 2013. Optimism Bias: Supplementary Green Book Guidance . It uses a worked example to illustrate how to implement their suggested procedure. This guidance is highly recommended, it is an excellent document with very practical insights that you can learn from and use in your organisation. Feel free to share the link.

Please refer to the glossary to check any terminology you are unfamiliar with: Glossary of Project Management Terms

Coming up...

In the next section you will be invited to share your thoughts on optimism bias.