Optimism bias and strategic misinterpretation in context

You have explored the concepts of optimism bias and strategic misinterpretation and examined how to counter the problems these issues create. Let's now bring these two concepts together.

Now you may be asking yourself:

Professor Bent Flyvbjerg (2008) has explained how to contextualise each factor.

Where political and organisational pressures are low, poor project performance is attributable to optimism bias. In cases where political pressures are high, optimism bias as an explanation is less common. In these cases, strategic misinterpretation is often the cause of poor project performance. For example, a politician may downplay the cost of a new bridge from $1000 to $500 in order to demonstrate how the bridge is a good deal, and to obtain power.

As the illustration (adapted from Flyvbjerg, 2006) indicates, these two explanations are complementary: where one is weak, the other might be high but both are important in analysing project forecasting and performance.

Reference class forecast

A very important tool to address optimism bias and strategic misinterpretation is the reference class forecast.

The Massachusetts Institute of Technology (MIT) asked Giorgio (your course instructor) to write a report about why major projects are often delivered over-budget and late: Locatelli, G. 2018. Why are Megaprojects, including nuclear power plants, delivered overbudget and late? Reasons and Remedies . Center for Advanced Nuclear Energy Systems , MIT pp.1-28. Giorgio outlined some of the key ideas covered in the lessons you have studied this week, presented the theory of the reference class forecast and applied it to nuclear power. You are invited to read and share this report.

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

Coming up...

In the following video you will learn about three reasons why projects often run over budget.