On planning fallacy

8/15/2024

Irja Rae, Figure Baltic Advisory leading partner

The planning fallacy is a cognitive bias that causes people to underestimate the time, money and resources needed to complete tasks and projects. This fallacy has been widely studied in the field of project management, but the problem is often found in other activities as well.

Planning fallacy arises from a number of cognitive biases and psychological factors. The main causes are:

• Bias towards optimism: People tend to overestimate the likelihood of positive outcomes and underestimate the possibility of negative events. They believe that their projects will go better than they actually do.
• Overconfidence: People tend to overestimate their knowledge and abilities, leading to unrealistic projections.
• Strategic false play: Sometimes people deliberately make over-optimistic predictions in order to get a project approved or funded.
• Ignoring known problems: People ignore past experiences and problems, believing that things will be better this time.
• Lack of experience: Less experienced people underestimate the complexity of the tasks and the resources needed.

We encounter the planning fallacy at the workplace, in our private lives as well as in school. I am a second year student and often underestimate the time needed to complete various homework assignments. I often want to curse myself for that: I should know that it takes more time to get things done than I thought at the beginning. At work, we often find that things don't get done on time; in everyday life, we underestimate the time needed to do our chores or get to a meeting, which causes stress for both the person waiting and the person being waited on.

I recently visited Australia and, of course, the Sydney Opera House. This is a classic example of a planning fallacy. The construction of the Opera House began in 1957 and the planned completion date was 1963, but the building was not actually completed until 1973. In addition, construction costs exceeded the original budget many times over. Due to a planning error, the project took much longer and cost more than originally estimated. We can find a similar example closer to home - when was it that we were supposed to be able to catch a high-speed train from Tallinn to Riga?

Our customers are no strangers to this issue either. Many clients underestimate the time it takes to submit data forms on time. Initially, people think they will be able to submit the data on time, but later it turns out that the process is more complex than expected and takes longer. This is a typical example of a planning error where the complexity of the tasks and the time required are underestimated.

How can a planning error be detected and prevented?

Recognising and preventing planning fallacies are essential to achieving better results. Here are some tips on how to recognise and prevent these:

• Be realistic. Use past experience and data from similar projects to make more accurate forecasts.
• Divide tasks into smaller chunks. Large tasks can seem overwhelmingly huge and unpredictable. By breaking them down into smaller parts, it's easier to estimate how long each part will take and to track progress.
• Use tools. Use time planning tools to help structure tasks and schedule them.
• Use scheduling tools to help you work out the tasks and organise them. Regularly track your progress and adjust your schedule as needed. Use progress reports and review progress regularly.
• Recognise and reward. Recognize and reward yourself or your team when tasks are completed on time and accurately. This will increase the motivation to prioritise accurate time planning.
• Training. Continuous learning and development will help to improve time planning skills.
• Be aware of your emotions. Be aware of your emotions and learn to manage them to avoid making unrealistic predictions.

Usually, we start planning for a new season in the autumn. If you want to learn more about the planning error by then, I recommend the following books:

• "Thinking, Fast and Slow" by Daniel Kahneman. An excellent book about cognitive biases and decision-making processes, including planning error.
• "The Black Swan: The Impact of the Highly Improbable" by Nassim Nicholas Taleb. Examines the impact of unexpected events and explains why we often fail to anticipate them.
• "Predictably Irrational: The Hidden Forces That Shape Our Decisions" by Dan Ariely. Looks at how irrational forces influence our everyday decisions.
• "Scarcity: Why Having Too Little Means So Much" by Sendhil Mullainathan and Eldar Shafir. Analyses how scarcity affects our thinking and decisions.
• "Nudge: Improving Decisions About Health, Wealth, and Happiness" by Richard H. Thaler and Cass R. Sunstein. Explains how small changes can positively influence people's behaviour.
• "Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones" by James Clear. While this book focuses more on habit formation, it also provides valuable tips on how to better plan and execute your goals while avoiding planning mistakes.