The dangers of the planning fallacy and how to overcome it
Blog: Monday Project Management Blog
New projects spark a great deal of excitement and optimism, and when imagining reaching the end goal, people aren’t usually pessimistic about them. If they were, they probably wouldn’t be planning the project in the first place, right? New projects give rise to a great deal of enthusiasm and this applies to both the individual and organizational levels. When a team starts to plan a project, they might be thinking about the magnificently beneficial impact that the endeavor will have. But they may be paying less attention to the negative aspects such as cost, risk, time, or failures on similar tasks from the past.
As Daniel Kahneman, cognitive bias researcher, puts it: “People who are in a good mood are more likely to let their biases affect their thinking.” Learn more about the planning fallacy from monday.com.
While this might sound like a made-up scenario that doesn’t apply to you or people in general, it isn’t. This is a well-known and scientifically studied phenomenon — it’s called the planning fallacy. This article explores what the planning fallacy is, why you should take it into consideration when planning future tasks, and how to mitigate its negative impact on projects. We’ll also address some FAQs about the planning fallacy in project management.
What is the planning fallacy?
The planning fallacy is a cognitive bias that describes people’s tendency to underestimate the amount of time, costs, and risks of future actions while overestimating the benefits of those actions.
It has been shown to impact individuals as well as organizations and can lead to sub-optimal decision-making. This can ultimately have a negative effect on projects, preventing teams from meeting objectives according to their planned trajectory. Therefore, it’s worth understanding.
One reason for the planning fallacy is that people often base their estimates on optimistic scenarios rather than considering worst-case scenarios. Another reason is that people tend to focus on successful examples of similar projects rather than looking at all the data objectively. The planning fallacy can be addressed by taking a more realistic approach to estimating future actions and not dismissing negative information when making decisions. By taking a more realistic view of the costs, risks, and benefits involved, you can make better decisions and achieve better project results.
Here’s a quick history on the study of the planning fallacy in psychology and behavioral economics.
“Planning fallacy” is a part of our Project Management Glossary — check out the full list of terms and definitions!
Background of the planning fallacy
The planning fallacy was first put forward by Daniel Kahneman and Amos Tversky, two well-renowned research figures in psychology and behavioral economics. In a 1979 paper, Kahneman and Tversky argued that when people anticipate the future, they tend to over-rely on intuition for making judgments and that this leads to inaccurate predictions. However, the types of mistakes people make aren’t completely random. They are systematic and indicate that they conform to certain cognitive biases.
In this paper, Kahneman and Tversky used the example of planning to show how bias interferes with our predictions about the future. They noted how scientists and writers are often guilty of underestimating how long projects will take; despite experiencing this multiple times over, they continue to make the same scheduling mistakes. They referred to this phenomenon as the planning fallacy.
In 2003, Kahneman expanded his definition of the planning fallacy to more specifically address the “underestimation of time, costs, and risks of future actions and the overestimation of the benefits of the same actions.” As such, the planning fallacy consists of two key errors: overestimating positive outcomes and downplaying potential drawbacks. You might be wondering why this is important in project management and why you should care about it at all — let’s explore that.
Why is the planning fallacy important to understand?
In general, when someone poses a new idea and the team meets in the project drawing room, there’s an overall air of excitement and optimism. While optimism is an essential ingredient to any project, it does have its drawbacks. Firstly, it puts people into an optimistic frame of mind. When this happens, it’s more cognitively difficult for people to imagine worst-case scenarios. This can serve to dampen the collective enthusiasm that’s characteristic of starting new projects. As such, there’s a general tendency towards positivity, leading to a dismissal of negative information. By not taking negative as well as positive data into account, teams run the risk of:
- Underestimating costs
- Underestimating time
- Overestimating beneficial impact
By understanding that people tend to be overly optimistic when anticipating the future and planning projects, we can mitigate our own bias by being aware of and preparing for it. The way in which simple awareness of cognitive bias can be a powerful tool to reverse it is demonstrated in studies on the bystander effect.
The bystander effect refers to the tendency of people to help less when there are other bystanders present. For example, imagine you’re walking down the street and the only other person around is a small child. Suddenly, the child trips and hits their head on the ground — most people in this situation would immediately help the child. However, if you’re on a busy street with multitudes of other people around and suddenly a child trips and hits their head, you’re less likely to help. This is the bystander effect.
The silver lining here is highlighted in research from the Journal of Experimental Social Psychology: awareness can reverse the bystander effect. The same principle can apply to the planning fallacy. By simply being aware that this tendency exists, people have greater insight into the bias as it occurs and can take steps to counteract it.
Let’s take a look at an example of the planning fallacy to give you a clearer idea of what it looks like in reality.
Example of the planning fallacy
There are many real-life examples of the planning fallacy. One classic example comes from the construction of the Sydney Opera House. When the project was first proposed in 1957, officials estimated that it would cost approximately 5 million Australian dollars and be completed by 1963. The project ended up costing over 70 million Australian dollars and taking more than 14 years to complete.
This example demonstrates how even the most sophisticated organizations are prone to the planning fallacy. Their optimism about getting the project going may have influenced their ability to accurately predict soft costs and the time necessary to complete the project.
Perhaps they would have benefited from the tips we’re about to share with you.
How to avoid the planning fallacy
Simply being aware of intuitive prediction biases and corrective procedures to counteract them can help you avoid the planning fallacy. To help you complete a future task on time and within budget, we’ve put together these tips:
- Use data from similar completed projects: Rather than solely looking at the positive side of data, make sure you consider the not-so-pleasant aspects of similar past projects, as well. monday.com offers you the opportunity to keep and export data from past projects. Once you’ve kept track of everything from past projects, you can easily archive it and use it for future projects.
- Make less optimistic predictions: Try to be aware that it’s easy to get carried away with enthusiasm and don’t be afraid to make negative predictions about possible outcomes. You don’t need to drag the whole project down — simply ask realistic questions like, “Is there anything that could hold the project up?” or, “Are there any unseen costs that we need to consider?”
- Ask for objective third-party criticism: It can be difficult for people involved in the project to take a critical standpoint. For this reason, it can be helpful to ask an objective third party if they think your implementation intentions are realistic or not. Don’t be afraid of taking on some criticism because it can be helpful in the long run.
- Use a project planning template: By using a monday.com Project Planning Template, you can clearly visualize a realistic trajectory of your project. You can break your project down into milestones, creating timelines for each. By doing this, you get into the granular details and are less likely to underestimate how long the project will take overall.
Frequently asked questions
What is the planning fallacy?
The planning fallacy is a cognitive bias that causes people to underestimate the time, costs, and risks associated with a project while overestimating the benefits. It’s a well-documented phenomenon and affects even the most experienced professionals. It has also been observed in a wide range of contexts, from individual decision-making to large-scale planning endeavors.
What is a strategy to overcome the planning fallacy?
To complete a project without the negative effects of the planning fallacy you can:
- Educate yourself and your team about the fallacy
- Use data (positive AND negative) from similar past projects
- Make less optimistic predictions about outcomes
- Anticipate possible setbacks thoroughly
- Ask an objective third party for advice
Counteracting the cognitive bias
The planning fallacy is a cognitive bias that causes people to underestimate the time, costs, and risks of completing a project while overestimating the benefits. It can lead to extraneous costs and schedule delays, as well as sub-optimal project outcomes. The planning fallacy has been extensively studied in psychology and is a robust psychological and organizational phenomenon with many real-life examples.
To mitigate the negative impact the fallacy can have on your projects, use project data from past tasks, ask for third-party guidance, manage expectations realistically, and use project planning templates. monday.com has many features to help you collect and retrieve data from archives. Our Project Planning Templates allow you to clearly visualize project milestones so you can be more realistic and tackle the planning fallacy head on.
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