Coined by Kahneman and Tversky in 1979, planning fallacy describes the consistency with which humans underestimate the time, money and resources required in project planning. The planning fallacy occurs when plans unrealistically assume close to best-case scenarios, and which could have been made more realistic by consulting data from other similar projects.
Definition: Plans and forecasts that are: (1) close to best-case scenarios (2) could be better by looking at similar examples.
Example: Building contractors make most of their profits on additions to plans, reflecting customers inability to plan effectively.
Insight: Greatest responsibility for the planning fallacy is decision makers that approve the plan.
Insight: A challenge facing organisations is executives in different departments presenting overly optimistic plans as they compete for resources.
Insight: When outcomes are uncertain or there are risks.
Principle: Recognise the need for an outside view.
Principle: Forecast from other similar projects.
Principle: Organisations should reward planners for execution according to plans, and penalise the failure to anticipate difficulties.
Principle: Make decisions based on research and rational view of probabilities.
Insight: When people forecast completion times for projects, the estimate is usually much lower than the time actually required.
Principle: Add a buffer to project estimates.
Principle: Implement policies or processes to remove bias.
Principle: Question forecasts. Take an outside view. Use confidence intervals.
Insight: People have a strong tendency to underestimate project times. This is particularly strong in group projects.
Principle: In estimating the time for projects, look at similar examples of past completed projects.
Principle: Isolate all the steps required for a project. Estimate the time required individually, then make a total time estimate.
Reference: Study of time management - Roger Buehler at Wilfrid Laurier University asked students to indicate when they expected to finish an important term paper.
Insight: Most entrepreneurs are likely to raise too little money.
Insight: When we plan, we tend to assume that everything will go according to a best-case scenario.
Insight: First time entrepreneurs are particularly susceptible to the planning fallacy.
Principle: Act as though you have half the money in the bank.
Definition: People tend to underestimate how long a task will take.
Insight: Social pressure is a big factor in the planning fallacy. When we communicate how long it will take us to do something, we might not want to admit that it will take a long time.
Principle: Add 50 percent to your time estimates.
Insight: "Planning is guessing"
Insight: Long term business planning is a fantasy as there are many factors that are unknown or out of our control.
Insight: Plans can let the past drive the future, and put blinders on us.
Insight: Plans are inconsistent with improvisation, which are important for business.
Principle: Don't guess. Decide what to do this week, not this year.
Principle: Do not make decisions too far in advance.
Insight: People are consistently bad at planning.
Insight: There are so many unknowns when we plan.
Insight: We underestimate completion times.
Insight: We imagine best-case scenarios.
Insight: We rarely include 'slack' in planning, as it is not seen as acceptable by management.
Principle: Use plans, but do not depend on them.
Definition: Plans and forecasts that are unrealistically close to best-case scenarios.
Principle: Research similar completed tasks.
Insight: We are not good at estimating completion times.
Insight: We overestimate our abilities.
Definition: The systematic tendency toward unrealistic optimism about the time it takes to complete projects.
Insight: Humans make predictable mistakes.
Insight: Everything takes longer than you think, even if you know about the planning fallacy.
Insight: "The planning fallacy shows a consistent bias in people's planning ability, even with matters of a repeatable nature - though it is more exaggerated with non repeatable events."
Definition: "The widespread psychological tendency to underestimate how long it will take to complete a task."
Key Insights & Principles
Project Management
Humans are not good at planning.
Humans have an optimism bias when planning projects.
We can be reluctant to admit when we can't do something in a specific time frame, or push back on deadlines.
Even when we are aware of it, the planning fallacy is difficult to overcome.
Compare plans to similar completed projects when estimating time and resource requirements
Isolate all tasks individually. Estimate time and resource requirements for each and add up the total.
Always include a buffer.
Business and entrepreneurship
Planning extra resources for when things to go wrong is often not in the culture.
Executives competing for resources often have an incentive to present overly optimistic plans.
Plans that do not anticipate failures can lead to failure.
Plans do not account for improvisation - and improvisation is often important in business.
Detailed, long term planning might not be the optimal way forward.
Make honesty and accurate planning the culture. Reward accurate planning. Penalise inaccurate planning.
