Private Finance Projects and off-balance sheet debt - Economic Affairs Committee Contents

Examination of Witnesses (Question Numbers 260-264)

Mr Amyas Morse and Mr Ed Humpherson


  Q260  Chairman: It sounds fairly subjective.

  Mr Humpherson: I think that is right.

  Q261  Lord Moonie: Where did the concept of optimism bias come from? Did it come from the National Audit Office or perhaps somewhere else?

  Mr Humpherson: No.

  Q262  Chairman: So it came from the Treasury?

  Mr Humpherson: Well, it is a recognised element in academic analysis of projects, not simply public sector projects but it is a phenomenon, noted by academics in business schools who write about projects, that the people who specify the contracts tend to be quite optimistic at the outset particularly about cost but also about time to deliver.

  Q263  Chairman: This is second order optimism bias. We are talking about relative optimism bias here.

  Mr Humpherson: Yes and in thinking about how to assess the costs of conventionally funded alternatives to PFI, the Treasury said "we are aware of this academic analysis and our own experience of public sector projects so therefore we will see if we can assess this thing called optimism bias". Just to be clear, the National Audit Office never liked the idea that you would just take a set of cost estimates and inflate them by a percentage. We always thought that was far too subjective.

  Q264  Lord Eatwell: Is there a standard academic reference on this?

  Mr Humpherson: We could get them for you.

  Chairman: That would be useful. If there are no further questions, can I thank both of you very much indeed both for your written evidence and for your answers and in advance for the further written evidence you are going to give us. It was very helpful.

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