The American Planning Association Endorses Reference Class Forecasting

A major source of risk in project manage-ment is inaccurate forecasts of project costs, demand, and other impacts. The paper presents a promising new approach to mitigating such risk based on theories of decision-making under uncertainty, which won the 2002 Nobel Prize in economics. First, the paper docu-ments inaccuracy and risk in project man-agement. Second, it explains inaccuracy in terms of optimism bias and strategic misrepresentation. Third, the theoretical basis is presented for a promising new method called “reference class forecast-ing, ” which achieves accuracy by basing forecasts on actual performance in a ref-erence class of comparable projects and thereby bypassing both optimism bias and strategic misrepresentation. Fourth, the paper presents the first instance of practical reference class forecasting, which concerns cost forecasts for large transportation infrastructure projects. Finally, potentials for and barriers to ref-erence class forecasting are assessed