Planning fallacy – it's not your fault
There are 168 hours in a week. If we spend 40 working and 56 sleeping that leaves 72 hours for all the other things we want to get done! So why is it that we always under so much time pressure? It might just be that you're suffering from planning fallacy.
Don’t worry it’s not your fault. Until you understand planning fallacy every project will take longer than planned.
I was talking to a fellow homepreneur the other day about one of the perennial challenges she faces when it comes to running her business – that of project overrun. I’m completely with her on this problem. Why is it that we’re not very good at estimating how long a task is going to take? Even when it’s a task we’ve done before, it’s so easy to underestimate the time it takes to complete it.
I decided to see if this is a common problem and did some research. The whole topic of underestimating the time and cost of finishing a project comes under the heading of ‘planning fallacy’.
A fallacy is something that is widely believed to be true but, in reality, is false. In terms of business planning, this means that missing our targets and not meeting our objectives is commonplace. You are in good company if that project is late and costs a lot more than you budgeted! But it causes undue stress which all of us can do without.
Planning fallacy appears in our personal lives as well as at work. Have you ever been to the supermarket with a list of just 10 ingredients for dinner and come out having spent a small fortune with a trolley full of items you just happened to find on your way around the aisles? We’ve all done it. Sticking to a plan and not deviating is hard. We're not even able to go shopping and stick to a plan. So are we alone when it comes to not finishing that article or launching a new product?
In this blog I look at:
- the origins of planing fallace
- examples of planning fallacy
- a practical situation
- some solutions
The Origins of Planning Fallacy
But what are the origins of the term planning fallacy?
The phrase was coined by Nobel laureate, Daniel Kahneman and his colleague, Amos Tversky in a paper published in 1979 and concluded that we have an optimism bias towards our own estimates even if we have prior experience. For example: if I’m writing chapter 6 of a book (having written the previous 5 in 20 weeks – 4 weeks a chapter), I’m likely to plan less than 4 weeks for the completion of the next chapter. After all, I’m likely to get quicker as I write more. Even this simple estimate may be missed particularly if I have taken no account of all the factors which can impact on my time.
Optimism bias relies on our ability to believe that:
Success is skill, and Failure is bad luck
“Most of us view the world as more benign than it really is, our own attributes as more favourable than they truly are, and the goals we adopt as more achievable than they likely to be.” — Daniel Kahneman
However, evidence shows that our ‘inside view’ is to base our estimates on the best-case scenario and not the most likely scenario. We forecast the time a task is going to take without considering things that can go wrong. Research also shows that we’re poor at considering the experience of other’s similar projects.
This is frequently the seen in home renovations. The build not only takes longer but also invariably goes over budget. Anyone who has watched the TV programme Grand Designs will have witnessed this time and time again. I know it makes good TV to show imperfect planning and the impact on hopeful homeowners but there are plenty of large-scale construction projects designed by top architects and built by internationally renowned construction companies, with access to the largest project management technology and cutting-edge building processes, which massively overrun and exceed the budget many times over.
Take, for example,
- The building of the Sydney Opera House which was due to be completed in 1963 and was a decade late costing $102 million instead of the estimated $7 million.
- The Eurofighter Typhoon defense project took six years longer than expected and cost an additional 8 billion euros.
- The Channel Tunnel was a year (20%) overdue and £2 billion over budget at £4.6 billion.
- The Boston Central Artery was finished seven years later than planned and cost $12 billion more than estimated.
- Denver International Airport opened sixteen months later than scheduled, costing $4.8 billion, $2 billion more than expected.
If your project is a day late and only 10% over budget then you're doing well!
Inside and Outside Views
The interesting difference between how we see project planning and how others view our predictions is that whilst we tend to be over-optimistic, other people are likely to be over-pessimistic about our chances of bringing in a project on time.
When it really matters, asking someone to hold you accountable for your goals and targets. If that deadline keeps passing there's no better way to keep on track than to pledge your intentions to another person.
Best and worst case scenarios
Even when asked to give a range of predictions depending on different scenarios, we are still far from accurate in our predictions. In 1994, in their paper “Exploring the “planning fallacy”: Why people underestimate their task completion times.” published in the Journal of Personality and Social Psychology, Roger Buehler, Dale Griffin and Michael Ross outlined the results of a survey carried out with PhD students. 37 psychology students were asked to predict the time it would take to finish their theses under three different conditions:
- The most optimistic scenario was 27.4 days to completion
- The best case scenario 33.9 days
- Worst case 48.6 days
The actual average time taken was 55.5 days – more than every prediction in each condition.
Only 30% of students completed their theses within any of the predicted time limits. Fortunately, in the studies of students, most deadlines were met.
Most of us are past the thesis writing phase and don’t have massive construction projects to complete so when there is a deadline placed on our work by a client we are highly likely to meet it even if it means burning the candle at both ends the night before.
Why does Planning Fallacy happen?
Most projects we undertake are made up of multiple variables. Let’s take the example of a financial adviser writing a particularly involved pensions report for a client. This is a variant on a task which they have done many times before and one which has been done by their colleagues. The report requires several steps:
- Reviewing the current pension structure including investments and costs
- Interviewing the client and evaluating their retirement goals and attitude to risk
- Evaluating the different investment options including contributions
- Overlaying the tax implications of different strategies, and so on
- Finally writing up the report
- Gaining approval from the compliance officer
- Arranging meeting with the client to run through the recommendations.
(I have simplified this process for the sake of this example)
The more steps in the project the more likely it is that we’ll underestimate the predicted completion time. The optimism bias multiplies with each additional step. The task morphs from being typical to atypical as it increases in complexity which means we cannot base our estimates on our own previous experiences or even the experiences of others.
We could ask a colleague who has undertaken a similarly tricky evaluation. This is known as ‘reference classing’. One of the ways to overcome planning fallacy is to follow the steps proposed by Flyvbjerg:
- Identify an appropriate reference class (in our example: ask a colleague how long a similar case took to evaluate, research and write up)
- Obtain the statistics of the reference class and generate a baseline prediction (the colleague reckoned about 4 full working days plus meeting time)
- Ask if you are better or worse than the reference class? (you reckon you are less experienced and will need 5 days)
This example shows that there are many factors which could throw the pension planning report off target.
To help us find a successful approach it's worth looking at Rumsfeld’s Information Model.
This is all about ‘known’ and ’unknown’ information and in my opinion, is one of the key reasons we struggle with planning even quite simple tasks. We simply do not allow enough time either to brainstorm the likely unknowns and focus too heavily on the Known Knowns.
Going back to our example:
The client has two existing pensions with two major providers
The client is 55
How long will it take to receive information from the providers?
When will the compliance officer be available to review and sign off the report?
When will the client be able to meet?
We have no idea what these might be. When we plan we miss key things which can derail us.
If like most of us, the financial planner wants to please the client, they are naturally going to promise to deliver the report unrealistically early putting themselves under pressure. Add to that the tendency to want to over rather than underdeliver and the situation can become extremely stressful. Multiply this by all the other demands on us and we become over-extended and totally overwhelmed.
The Impact of Planning Fallacy on our own projects
With a book in the writing, a podcast to launch and the creation of a productivity course for homepreneurs in the making, I know only too well the pressures of managing multiple projects simultaneously. It’s the end of August 2018 and I feel like I’m juggling 20 plates on poles of different heights. It’s all my own making I hasten to add but it’s been my aim to achieve these goals in 2018. Therefore the autumn is going to be full on.
I don’t want my dates to slip and I don’t want the quality to drop either. What might have to give is the budget.
Without an externally determined timescale to meet, the likelihood of overrun increases. I need a solution to my planning fallacy problem.
- Make better estimates
- Refer to the experts
- Learn from mistakes
- Use best, median and worst-case scenarios
- Carry out a pre-mortem where strong supporters must address their doubts and doubters must consider the likelihood for success.
- Don’t suffer from ‘illusory superiority’ when you believe you are better than the average
- Take time to plan and segment tasks – start with the end in mind and reverse engineer
Maybe we should all follow author and speaker, Guy Kawasaki’s rule:
‘As a rule of thumb, when I see a projection, I add one year to delivery time and multiply by .1.’