Flood protection schemes - assessment of economic, environmental and social impacts: guidance
Guidance for local authorities on chapter 5 project appraisal of flood protection schemes under the Flood Risk Management (Scotland) Act 2009.
ANNEX C. Optimism Bias Data for Flood Protection Costs
C1. The following data and other details have been abstracted from the note issued by Defra to operating authorities in March 2003 (reference 23).
| Starting (upper bound) Optimism Bias factor for Strategy costs (pre-feasibility stage): | 60% |
|---|---|
| Starting (upper bound) Optimism Bias factor for Scheme costs (detailed design stage): | 30% |
C2. The risk components contributing to the above factors are detailed in tables C1 and C2. The risk components (except for those described "Other") may be reduced for individual strategies or schemes if demonstrable action to minimise risks has been taken, or other evidence is provided that risks are not applicable to the degree indicated. In which case, the revised sum of risk components should be divided by 100 and multiplied by either 60 or 30 to obtain the new Optimism Bias factor
Example of Optimism Bias approach: After an assessment of risk components, the "environmental impact" component for a strategy plan is halved (ie reduced by 6.5). The new optimism bias factor equals:
(100-6.5)/100 x 60 = 56
So the best estimate of Present Value strategy costs is increased by 56%, with this adjustment applying to operating and maintenance expenditure as well as capital expenditure.
Table C1. Risk components contributing to optimism bias factors
| Risk components contributing to optimism bias factors (see table C2) | Average % for flood defence projects | |
|---|---|---|
| Procurement | Late contractor involvement in design | 1 |
| Dispute and claims occurred | 11 | |
| Other | 1 | |
| Project specific | Design complexity | 4 |
| Degree of innovation | 4 | |
| Environmental impact | 13 | |
| Other | 9 | |
| Client specific | Inadequacy of the Business Case | 23 |
| Funding availability | 2 | |
| Project management team | 1 | |
| Poor project intelligence | 8 | |
| Environment | Public relations | 5 |
| Site characteristics | 4 | |
| External influences | Economic | 5 |
| Legislation/regulations | 4 | |
| Technology | 4 | |
| Other | 1 | |
Table C2. Definitions of risk components
| Procurement | Late contractor involvement in design | Late involvement of the contractor in the design leads to redesign or problems during construction. |
|---|---|---|
| Dispute and claims occurred | Disputes and claims occur where no mechanisms exist to manage effectively adversarial relationships between project stakeholders. | |
| Other | Other factors that relate to procurement which affect the final project cost. | |
| Project specific | Design complexity | The complexity of design (including requirements, specifications and detailed design) requires significant management, impacting on final project costs. |
| Degree of innovation | The degree of innovation required due to the nature of the project requires unproven methods to be used. | |
| Environmental impact | The project has a major impact on its adjacent area leading to objection from neighbours and the general public. | |
| Other | Other project specific factors which affect the final project cost. | |
| Client specific | Inadequacy of Business Case | The project scope changes as a result of the poor quality of requirement specifications and inadequate project scope definition. |
| Funding availability | Project delays or changes in scope occur as a result of the availability of funding. | |
| Project management team | The project management team's capabilities and/or experience impact on final project costs. | |
| Poor project intelligence | The quality of initial project intelligence (eg preliminary site investigation, user requirements surveys etc) impacts on the occurrence of unforeseen problems and costs. | |
| Environment | Public relations | A high level of effort is required to address public concern about the project, which impacts on the final project cost. |
| Site characteristics | The characteristics of the proposed environment for the project are highly sensitive to the project's environmental impacts (eg greenfield site with badger setts, or contaminated brownfield site). | |
| External influences | Economic | The project costs are sensitive to economic influences such as higher-than-expected construction cost inflation, oil price shocks etc. |
| Legislation/regulations | The project costs are sensitive to legislation and regulation changes, eg health and safety and building regulations. | |
| Technology | The project costs are sensitive to technological advancements, eg the effects of obsolescence. | |
| Other | Other external influencing factors which affect the final project cost. |
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