Point Lookout: a free weekly publication of Chaco Canyon Consulting
Volume 19, Issue 38;   September 18, 2019: The Planning Fallacy and Self-Interest

The Planning Fallacy and Self-Interest

by

A well-known cognitive bias, the planning fallacy, accounts for many unrealistic estimates of project cost and schedule. Overruns are common. But another cognitive bias, and organizational politics, combine with the planning fallacy to make a bad situation even worse.
An unfinished building, known as Szkieletor

An unfinished building, known as Szkieletor. Construction began in 1975, but stopped permanently in 1981 because of economic constraints and political unrest. Sometimes budgets aren't overrun. Sometimes they just run out. Image (cc) pl:Wikipedysta:Macieias courtesy Wikipedia.

Project plans usually include estimates of costs and schedules in addition to plans for work to be done, and the order of doing that work. Sometimes we fail to complete all the work we had in mind; sometimes we find we cannot do some work we wanted to do; sometimes we discover additional work we needed to do. But overall, the work actually done in a project does roughly approximate the work that was planned. Not so for cost and schedule. Cost and schedule can differ from projections by double, triple, and more, even when we make allowances for differences between work planned and work actually done.

In a 1977 report, Daniel Kahneman and Amos Tversky identify a particular cognitive bias, the planning fallacy, which afflicts planners. [Kahneman 1977] [Kahneman 1979] They discuss two types of information used by planners. Singular information is specific to the project at hand; distributional information is drawn from similar past efforts. The planning fallacy is the tendency of planners to pay too little attention to distributional information and too much attention to singular information, even when the singular information is scanty or questionable. Planners tend to underestimate cost and schedule by failing to harvest lessons from the distributional information, which is inherently more diverse and reliable than singular information.

But even when planners attend to distributional information, two forms of self-serving considerations can lead planners to make estimates that cannot be met. Here's how.

Self-serving bias
Choosing local experts is a common pattern for designating people to make estimates of cost and schedule. Usually the experts designated tend to be people who've done similar work in the past, and sometimes they must assess their own past work. When estimators must evaluate their own work, they have a conflict of interest that can compromise objectivity as a result of a cognitive bias known as self-serving bias. [Campbell 1999] Self-serving bias causes us to perceive ourselves more positively than objective judgment warrants. We tend to attribute successes to our own talents and decisions, and attribute failures to external factors.
When the The work actually done in a
project does roughly approximate
the work that was planned.
Not so for cost and schedule.
estimators designated for a project were themselves involved in the past efforts they're evaluating for estimation purposes — what Kahneman and Tversky call distributional information — self-serving bias tends to lead them to biased conclusions, which they then use to make projections for the project whose cost and schedule they're estimating.
Organizational politics
From the perspective of objective estimation based on balanced assessment of distributional and singular information, organizational politics can make a bad situation even worse. Estimators who are evaluating past efforts in which they played roles can use their evaluations as tools of what psychologists call impression management — to make themselves look good. They can thus enhance their own prospects for advancement. [Drory 2006] In this way, politics can limit the willingness of estimators to faithfully represent sources of successes and failures in past efforts. In effect, to gain political advantage, estimators tend to attribute too much of the reason for past successes to their own actions, and too much of the reason for past failures to external factors or to the actions of others, especially political rivals.

The distortions that result from the planning fallacy, from self-serving bias, and from organizational politics can reduce the chances that estimators will produce reliable results. When that happens, cost overruns and schedule delays become more likely. Go to top Top  Next issue: Planning Disappointments  Next Issue

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Footnotes

[Kahneman 1977]
Daniel Kahneman and Amos Tversky. "Intuitive Prediction: Biases and Corrective Procedures," Technical Report PTR-1042-7746, Defense Advanced Research Projects Agency, June 1977. Available here. Retrieved 19 September 2017. Back
[Kahneman 1979]
Daniel Kahneman and Amos Tversky. "Intuitive Prediction: Biases and Corrective Procedures," Management Science 12 (1979), 313-327. Back
[Campbell 1999]
W. Keith Campbell and Constantine Sedikides. "Self-threat magnifies the self-serving bias: A meta-analytic integration," Review of General Psychology 3:1 (1999), 23-43. Available here. Retrieved 2 September 2019. Back
[Drory 2006]
Amos Drory and Nurit Zaidman. "The politics of impression management in organizations: contextual effects," in Handbook of Organizational Politics, Eran Vigoda-Gadot and Amos Drory, eds., Cheltenham, UK and Northampton, MA, USA: Edward Elgar (2006), 75-85. Back

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