Projects go over-budget and over-schedule; small ones, like renovating your kitchen, and huge ones, like constructing the Sydney Opera House. One main reason is our overconfident optimistic approach to planning. Behavioral psychologists call this the “Planning Fallacy“.
This post defines the concept of planning fallacy, gives examples of its consequences on some global projects, and provides some tips to mitigate it.
The Planning Fallacy
The planning fallacy is when we underestimate the time and resources needed to complete a project. We are often optimistic about our performance and the outcome of the project, so we take our desires for real plans.
The planning fallacy is a cognitive bias that fools our decision-making ability into considering the best-case scenario. It has a somewhat positive side, which is risk-taking. This cognitive bias allows us to take both small risks, such as opening a small business, and huge risks such as starting a war.
Catastrophic Project Plans
The following chart presents some major projects around the globe that went catastrophically over-budget. Notice the trend; the bigger the project, the higher the overbudget.
Mitigate the Planning Fallacy
Among the methods to mitigate the planning fallacy, we present the major three:
- Outside View
- Agile Mindset
Consider an Outside View – Benchmark
We like to think that we will succeed where everyone else has failed. Where this can be the case occasionally, don’t take it as a general rule. When planning to a project, try to gather information on other individuals or organizations that went through the same project: What is the rate of success? What are the minimum and maximum accomplishments time? What are the main roadblocks, friction, and pain points? Consider this benchmark in your planning process and don’t beware of the overconfidence.
The process of planning can go like this: Identify similar projects to yours, search for statistics about their success rate and resources. Based on this generate a baseline prediction. Then correct this prediction based on specific information about the project at hand.
Ask people from outside the project or even outside your company to evaluate the plan, and to even criticize it.
Perform a Premortem
A postmortem, in the medical domain, analyzes the cause of death. In business, we often perform a postmortem to understand why a project has failed. Researchers such as Gary Klein suggest performing a premortem, the opposite concept, to avoid the trap of planning fallacy.
A premortem session is a kind of brain-storming where the project team imagines that the project has failed and suggests all the reasons that may lead to such failure. Such an exercise allows also to mitigate other cognitive biases that may kill the project, such as the group thinking bias and the Abilene paradox. The project leader encourages the team to speak out their minds instead of trying to maintain group harmony. Another benefit of a premortem session is empowering the team and extracting the best ideas from them.
Apply Agile Mindset for Project Planning
Project management methods based on the Agile mindset, such as Scrum, propose some planning rituals that actively involve the team in the resource estimation process. Furthermore, these methods divide the project’s tasks into smaller tasks and perform them in an incremental and iterative way using sprints. After each sprint, the team reflects on the previous sprint to adjust its rhythm, and plan the next sprint. This way we mitigate the overconfidence optimism earlier in the project.
- Klein, Gary. “Performing a project premortem.” Harvard business review 85.9 (2007): 18-19.
- McCarthy, Niall. “Major Construction Projects That Went Catastrophically Over-Budget [Infographic].” Forbes Sep 28, 2018.
- Kahneman, Daniel. Thinking, fast and slow. Macmillan, 2011.