Would you be impressed if I told you that I can predict the future? It's true. I do it all the time. I don't claim to be very good at it (except when I perform as a mentalist), but I do make predictions. And so do you.
We make projections about the future every day and we usually get it wrong. Way wrong, in many cases. Think about the last time you planned a home remodeling project. How far off were you on your time and budget estimate? Studies show that only 1/3 of all work projects finish on time and on budget.
What causes us to be so bad at planning? I’ll give you a hint: it’s small, devious and hiding in your head. Yes, the primitive subconscious lizard brain is to blame!
The textbook project
In the 1980s a group of behavioral psychologists led by Daniel Kahneman were writing a textbook for high school students. After a year, Danny asked the group how much longer did they think it would take to finish the book. The consensus was about two years.
How long did it actually take? Eight more years. And these were scholars in judgment and decision making!
Here’s the kicker – early in the process they had learned from one of their colleagues that similar groups undertaking textbook authoring projects took about 8 years to complete, on average. And those are the ones that finished. Overall, 40% of the books were never even completed.
Yet Kahneman’s group were sure they would finish and that they could do it much faster than other groups, so they stuck with their two year estimate. Why were they so wrong?
A common fallacy
Kahneman loves telling this somewhat embarrassing story because it led him to new insights about behavior. He named this type of error "The Planning Fallacy" and believes it "may well be the most significant of the cognitive biases."
He blames his group's poor judgment on these factors:
1) The Optimism Bias – it is human nature to believe we are better than we really are, especially at our jobs. It is the Lake Wobegon Effect at work, where “…all the women are strong, all the men are good-looking, and all the children are above average.”
2) Oversimplification – it is also a lizard brain tendency to want to oversimplify complex tasks because it leads to faster decision making. But it also leads to estimation errors.
Because of these and other factors, we are prone to error when we use only our own instincts, thoughts, and internal calculations. Kahneman calls this "inside view." More accurate predictions come from considering results from similar situations or projects from others external to yourself and your team. Taking this "outside view" creates a better indicator of true time and cost.
How do we overcome the planning fallacy? Three steps:
1) Identify the “reference class” – past outside projects or tasks similar to yours
2) Gather statistics on results from the reference class to create a baseline
3) Adjust from the baseline based on the specifics of your project that make it unique. Be careful to be realistic about how you, your team, or your project differs.
So when predicting the future of your own projects, look out instead of in and people will think you have mentalism powers.
…like me.
Think well and be well.
- Steve Haffner
Want to learn more about improving your thinking and decision making?