Managing the Planning Fallacy in Large, Complex Infrastructure Programs
Daniel Kahneman’s recent book, “Thinking, Fast and Slow” 1 returned his concept of the “planning fallacy” to the project management center stage when considering large, complex projects and programs. First coined by Kahneman and Amos Tversky in a 1979 paper2, the planning fallacy is the tendency of people and organizations to underestimate how long a task will take even when they have experience of similar tasks over running.
Perhaps the poster children for the planning fallacy are large scale public works projects.
Reference class forecasting is one method for suspending one’s impressions and providing a more critical evaluation of the task at hand. It addresses the natural tendency to underestimate costs, completion times and risks while at the same time overestimating benefits. It squeezes out biases while considering the inevitable “improbable” risks that all projects face. The risks that inhabit the “white space” between elements of a program and possibly even the odd “Black Swan” that shows up from time to time.
The paper looks at an example at how reference class forecasting can be used not only to provide a basis for checking planned execution approaches and associated project timelines but also to identify how the execution methodology and, in this case, even the contracting strategy will need to be modified.