Optimism Bias and Contingency at Homes England
The third paper in a series of Homes England research reports on measuring social value.
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As part of Homes England’s mission to drive regeneration and housing delivery, the Agency has been undertaking a comprehensive programme of research aimed at strengthening the approach to economic appraisal and the measurement of social value. This has been carried out in close collaboration with the Department for Levelling Up, Housing and Communities (DLUHC), with the research aligned to the department’s appraisal guide and the HM Treasury Green Book.
The third paper to be published as part of this research programme focuses on optimism bias and contingency. Optimism bias refers to the tendency for appraisers to be optimistically biased about key project parameters. Adjustments made to account for this can have a significant impact on the results from an economic appraisal and so it is vital that any adjustments are informed by the best available evidence.
This study applies a Reference Class Forecasting approach to better inform judgements of optimism bias in the context of Homes England’s interventions. It focuses on cost estimation and, in addition to supporting more robust economic appraisal, the outputs can be used, alongside other methods, to inform financial appraisal and the estimation of contingency. An Excel tool has also been produced to allow appraisers to apply the findings from the research.
Last updated 12 February 2024 + show all updates
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Updated the spreadsheet.
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First published.