The Leonard P. Zakim Bunker Hill Bridge, part of Boston's "Big Dig." One of the many problems contributing to cost overruns in the project was a sequence of delays in determining the design of the Charles River Crossing. Once this decision making overran its schedule, very serious problems developed later in the project, in both management and engineering and construction. For projects that take years to complete, inflation can be a significant cause of cost overruns. In the case of the Big Dig, the original cost estimate in 1982 was 2.8 billion dollars with completion in 1998. It was completed in December 2007 at a cost of over 8 billion dollars (in 1982 dollars). It has been estimated that over half of the overrun was due to inflation, though that figure is somewhat controversial. The lesson for long-lived projects is that initial cost estimates should be calculated in year-of-expenditure dollars.
A failure to allow for inflation might be traceable to the ambiguity of inflation itself. We have difficulty assessing the validity of cost projections that anticipate inflation in the future, because inflation is so difficult to predict. Buyers don't demand such projections, and financial experts have difficulty producing them.
Pictured is the Leonard P. Zakim Bunker Hill Bridge in a later construction phase, as it emerges from the Thomas P. "Tip" O'Neill Jr. Tunnel to cross the Charles River. This particular crossing is very near the one referred to as "two if by sea," in the poem, "The Midnight Ride of Paul Revere", by Longfellow (1860). Photo courtesy Massachusetts Turnpike Authority.
In two previous posts, I examined four reasons why planning complex projects is so difficult. In the first of these two posts, I explored how we can be limited by our ability to imagine what we're planning, and by our access to knowledge of past failures. In the second post, I considered external influences. One set of external influences is associated with a group of cognitive biases known as priming effects. A second set of external influences includes fads, dogma, regulations, and traditions.
Continuing this exploration of difficulties encountered in planning complex projects, I turn now to internal causes of trouble, namely, patterns in the way we think when we're constructing plans.
- Magical number 7
- In one of most-cited papers in the entirety of the psychology literature, George Miller reported experimental results regarding numerical limits to human cognition. [Miller 1956] There are limitations to the number of "chunks" people can hold in short term memory. And there are limits to our ability to distinguish among a defined set of stimuli to govern a choice among a defined set of associated responses. These limits, coincidentally, appear to lie in the range of 7±2 items.
- The effects of these limits on planning activities are both subtle and profound. For example, a widely believed maxim in the presentation architecture community is known as the 6x6 rule. It states that presentation slides should contain no more than six bullet points of not more than six words each. Although it is motivated by Miller's observations, experimental confirmation of its value has been elusive.
- However, the limits Miller described are real. They can play a role in planning efforts for complex projects that have parallel efforts that number more than 7±2. For example, managing a project with 19 parallel streams of tasks would tend to become unwieldy because project managers might not be able to keep the various attributes of so many work streams in their minds.
- The usual approach for dealing with this is to "chunk" the effort into pieces that are more manageable in number. Then if necessary, chunk each piece. This approach is usually called analysis and synthesis.
- Some of what we attribute to "poor planning"
is perhaps better regarded as an inevitable
result of how humans thinkAnalysis and synthesis can be problematic, because the chunks sometimes interact with each other in unexpected ways, outside the descriptions we use for the synthesis. - Ambiguity effect
- The ambiguity effect is a cognitive bias that affects how we make decisions under uncertainty. [Ellsberg 1961] When choosing among options that have favorable outcomes, we tend to favor those options for which the outcome is more certain, even if less favorable. And we tend to avoid options for which the probability of a given favorable outcome is unknown, even if all possible outcomes of that option are favorable.
- When devising plans for projects, the ambiguity effect can be costly indeed. For example, when considering a novel approach that offers great savings in cost and schedule, we might compare it unfavorably to a more familiar approach that's slower and more costly. The ambiguity effect causes us to favor the conventional approach more than might be justified by the uncertainties of using an unconventional approach for the first time.
- Mitigating the ambiguity effect requires careful estimation and objective computations.
- The planning fallacy
- 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.
- The tendency to attend too little to distributional information afflicts us all as people, but it can afflict organizations as well. For example, many organizations conduct retrospectives or "lessons learned" exercises in connection with projects. But the information they collect, valuable though it might be to subsequent projects, isn't always archived in ways that facilitate its use by the leaders of those subsequent projects. It might be scattered, or stored within the project that generated it, rather than collected with other similar volumes into an organized library. In some organizations, it is actually classified and its use is restricted.
- Such practices intensify the effects of the planning fallacy.
Knowing these patterns, and others like them, provides enormous advantages to planners. They can check their plans for these effects, and when they find indications of their presence, they can revise those plans to mitigate the effects. Of course, you have to plan on taking these steps from the outset. And that plan is itself subject to these same effects. First in this series 
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Related articles
More articles on Cognitive Biases at Work:
Why Scope Expands: I- Scope creep is depressingly familiar. Its anti-partner, spontaneous and stealthy scope contraction,
has no accepted name, and is rarely seen. Why?
Effects of Shared Information Bias: II- Shared information bias is widely recognized as a cause of bad decisions. But over time, it can also
erode a group's ability to assess reality accurately. That can lead to a widening gap between reality
and the group's perceptions of reality.
Bullet Point Madness: I- 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.
Cognitive Biases at Work- Cognitive biases can lead us to misunderstand situations, overlook options, and make decisions we regret.
The patterns of thinking that lead to cognitive biases provide speed and economy advantages, but we
must manage the risks that come along with them.
Choice-Supportive Bias- Choice-supportive bias is a cognitive bias that causes us to assess our past choices as more fitting
than they actually were. The erroneous judgments it produces can be especially costly to organizations
interested in improving decision processes.
See also Cognitive Biases at Work and Project Management for more related articles.
Forthcoming issues of Point Lookout
Coming November 30: Avoiding Speed Bumps: II- Many of the difficulties we encounter when working together don't create long-term harm, but they do cause delays, confusion, and frustration. Here's Part II of a little catalog of tactics for avoiding speed bumps. Available here and by RSS on November 30.
And on December 7: Reaching Agreements in Technological Contexts- Reaching consensus in technological contexts presents special challenges. Problems can arise from interactions between the technological elements of the issue at hand, and the social dynamics of the group addressing that issue. Here are three examples. Available here and by RSS on December 7.
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