Planning Disappointments

When people estimate how long a piece of work will take — or how much it will cost — their estimates are fairly reliable if they've done lots of similar work before. But if the work is unfamiliar, or if there are significant unknowns associated with the work, estimates of cost and schedule tend to be far less accurate, even when all we asked for was a "rough estimate." And the inaccuracies are almost always of a certain kind: final costs tend to exceed estimates, and deliveries are often late.

Why does this happen?

Last time, I explored three important contributors to this pattern — the planning fallacy, self-serving bias, and organizational politics. But in addition to these sources of systematic errors, there are two conceptual errors that are a bit mathematical in nature. One is a general misunderstanding of the term "rough estimate," and the second is a misconception about the shape of probability distributions of costs and schedules for unfamiliar projects.

Misunderstanding the term "rough estimate"

Rough estimates can be useful if we understand the true meaning of "rough." Technically, a rough estimate is an estimate that has a relatively wide margin of error. Every estimated value has a band of values that corresponds to, say, 95% confidence, and a mean or average that corresponds to a point within that band. If the width of the 95% confidence band is W, and the mean is M, then there is a ratio R equal to W/M. The "rougher" the estimate is, the greater is R.

To be safe, users of rough estimates need to use the value at the top end of the band for estimated values in which larger is worse, or the value at the low end of the band for estimated values in which smaller is worse. Too often, people just use M. They can be forgiven, of course, when the estimator provides M alone, without reference to a 95% confidence band.

There are clear reasons for this. In my experience, many consumers of estimates — the decision makers, as they're often called — are uncomfortable with any estimate that includes an uncertainty band. I've actually heard reports about decision makers' responses to estimates of the form, say, 8.7 million +/- 1.5 million, that go like this: "Don't give me this +/- stuff! If you don't know how much it will cost, just admit it! Now give me an estimate! Exactly what will this cost?"

In fairness, Rough estimates can be useful
if we understand the true
meaning of "rough"many estimators lack sufficient information needed to compute a 95% confidence band. Others aren't sure how to calculate it. Others are intimidated by decision makers who reject the "+/- stuff," and still others aren't intimidated, but just don't want to fight with resistant decision makers. Whatever the case, estimates without 95% confidence bands are common, and because the estimates lack these bands, overruns are defined as "less favorable than the so-called estimate," which makes overruns very likely.

The shape of probability distributions of costs and schedules

Another source of estimation error is our human intuition about the shape of the probability distributions of costs and schedules. We tend to think of these distributions as fairly symmetrical around some average, or mean. And we also like to believe that the mean of, say, the cost distribution, is fairly close to the most likely value of that distribution.

We base this intuition on our experience with familiar efforts. And as it happens, for familiar efforts, our experience is a useful guide. That is, the distribution of cost or schedule outcomes for familiar efforts is fairly symmetric around some average value.

But for unfamiliar efforts, our intuition is misleading — sometimes grossly misleading. And this comes about for reasons that are easy to understand intellectually, but difficult to incorporate into our intuition.

With unfamiliar efforts, or efforts that are subject to significant unknowns, the probability distributions for costs and schedules aren't symmetric about their means. In fact, they're wildly asymmetric. While there are some pretty hard limits on how quickly or cheaply things can happen, there are no analogous limits on how slowly or expensively things can happen. For example, no matter how hard you try, you probably cannot get to the conference room in the other building in less than 45 seconds — even if you run. But without trying to dawdle, it can sometimes take you 20 minutes to get there, even though it's only a five-minute walk, depending on the weather, who you run into on the way over, and whether or not you have to go back to pick up something you forgot.

For unfamiliar projects, or projects subject to significant unknowns, the probability distributions for costs and schedules tend to have long "tails" corresponding to unanticipated costs and delays. These tails cause the distributions to have average values that can be much greater than their most likely values. And that's what throws off our intuitions. When we estimate, we tend to estimate the most likely value. And when the average value is much greater than the most likely value, our estimates tend to fall crazily short. The situation is even worse when we stack one task or project after another in a long train, because the uncertainty bands stack up.

Next time you make or receive an estimate without a 95% confidence band, ask yourself, "What are the lowest and highest values that wouldn't shock me totally senseless beyond all reason?" That should give you some idea of what 95% confidence means.  Top    Next Issue

Projects never go quite as planned. We expect that, but we don't expect disaster. How can we get better at spotting disaster when there's still time to prevent it? How to Spot a Troubled Project Before the Trouble Starts is filled with tips for executives, senior managers, managers of project managers, and sponsors of projects in project-oriented organizations. It helps readers learn the subtle cues that indicate that a project is at risk for wreckage in time to do something about it. It's an ebook, but it's about 15% larger than "Who Moved My Cheese?" Just . Order Now! .

Your comments are welcome

About Point Lookout

Thank you for reading this article. I hope you enjoyed it and found it useful, and that you'll consider recommending it to a friend.

Point Lookout is a free weekly email newsletter. Browse the archive of past issues. Subscribe for free.

Support Point Lookout by joining the Friends of Point Lookout, as an individual or as an organization.

Do you face a complex interpersonal situation? Send it in, anonymously if you like, and I'll give you my two cents.

Related articles

More articles on Project Management:

Are You Changing Tactics or Moving the Goal Posts?

When we make a mid-course correction in a project, we're usually responding to a newly uncovered difficulty that requires a change in tactics. Sometimes, we can't resist the temptation to change the goals of the project at the same time. And that can be a big mistake.

Shining Some Light on "Going Dark"

If you're a project manager, and a team member "goes dark" — disappears or refuses to report how things are going — project risks escalate dramatically. Getting current status becomes a top priority problem. What can you do?

The True Costs of Cost-Cutting

The metaphor "trimming the fat" rests on the belief that some parts of the organization are expendable, and we can remove them with little impact on the remainder. Ah, if only things actually worked that way...

Communication Traps for Virtual Teams: II

Communication can be problematic for any team, especially under pressure. But virtual teams face challenges that are less common in face-to-face teams. Here's Part II of a little catalog with some recommendations.

Down in the Weeds: I

When someone says, "I think we're down in the weeds," a common meaning is that we're focusing on inappropriate — and possibly irrelevant — details. How does this happen and what can we do about it?

See also Project Management and Personal, Team, and Organizational Effectiveness for more related articles.

Forthcoming issues of Point Lookout

Coming October 27: Five Guidelines for Choices

Each day we make dozens or hundreds of choices — maybe more. We make many of those choices outside our awareness. But we can make better choices if we can recognize choice patterns that often lead to trouble. Here are five guidelines for making choices. Available here and by RSS on October 27.

And on November 3: Way Over Their Heads

For organizations in crisis, some but not all their people understand the situation. Toxic conflict can erupt between those who grasp the problem's severity and those who don't. Trying to resolve the conflict by educating one's opponents rarely works. There are alternatives. Available here and by RSS on November 3.

Coaching services

I offer email and telephone coaching at both corporate and individual rates. Contact Rick for details at rbrenEQuetChPjwYBDxmgner@ChacxXTxBssoFmfDfMugoCanyon.com or (650) 787-6475, or toll-free in the continental US at (866) 378-5470.

Get the ebook!

Past issues of Point Lookout are available in six ebooks:

• Get 2001-2 in Geese Don't Land on Twigs (PDF, )
• Get 2003-4 in Why Dogs Wag (PDF, )
• Get 2005-6 in Loopy Things We Do (PDF, )
• Get 2007-8 in Things We Believe That Maybe Aren't So True (PDF, )
• Get 2009-10 in The Questions Not Asked (PDF, )
• Get all of the first twelve years (2001-2012) in The Collected Issues of Point Lookout (PDF, )

Are you a writer, editor or publisher on deadline? Are you looking for an article that will get people talking and get compliments flying your way? You can have 500-1000 words in your inbox in one hour. License any article from this Web site. More info

Public seminars

The Power Affect: How We Express Our Personal Power

Many people who possess real organizational power have a characteristic demeanor. It's the way they project their presence. I call this the power affect. Some people — call them power pretenders — adopt the power affect well before they attain significant organizational power. Unfortunately for their colleagues, and for their organizations, power pretenders can attain organizational power out of proportion to their merit or abilities. Understanding the power affect is therefore important for anyone who aims to attain power, or anyone who works with power pretenders. Read more about this program.

• A recording of a program presented June 29, 2017, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   
• A recording of a program presented June 29, 2017, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   

Bullet Points: Mastery or Madness?

Decision makers in modern organizations commonly demand briefings in the form of bullet points or a series of series of bullet points. But this form of presentation has limited value for complex decisions. We need something more. We actually need to think. Briefers who combine the bullet-point format with a variety of persuasion techniques can mislead decision makers, guiding them into making poor decisions. Read more about this program.

• A recording of a program presented June 24, 2020, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.
   
• A recording of a program presented June 24, 2020, Monthly Webinar, sponsored by Technobility Webinar Series. PMI members can earn 1.0 Category 'A' PDU by viewing this program. View this program now.