The Planning Fallacy: This is Why We Miss Deadlines!
Back in 1969, the then mayor of Montreal, Jean Drapeau, proudly announced that the 1976 Summer Olympics would feature a state-of-the-art stadium which would be enclosed by the world’s first ever retractable roof! It would be called the Olympic Stadium or the “Big O” in reference to both the round shape of its roof and its name.
In fact, Drapeau was so confident that the whole Olympic venture would come in under budget that he exclaimed: “The Montreal Olympics can no more lose money than a man can have a baby,” He went on to add that the Games would be the first ever “self-financing games” and that the sales of Olympic stamps, lottery tickets, and coins would actually cause it to make money!
When reporters scoffed at him, he shot back: “it won’t be very long before some argument is started throughout Canada to find out how the surplus will be spent.”
We will come back to his story in a little bit, but unfortunately, Drapeau was a victim of the “planning fallacy”.
What Exactly is the Planning Fallacy?
The planning fallacy is a type of optimism bias which causes us to underestimate how long it will take us to complete an upcoming project or task.
In other words, as humans, we are REALLY BAD at estimating how long it will take us to do things!
The interesting thing is that the planning fallacy sometimes occurs even though we are aware that similar projects or tasks have taken us longer to complete in the past than we had originally planned. The concept of the planning fallacy originated in a paper by Daniel Kahneman and Amos Tversky in 1979, who observed that “Scientists and writers, for example, are notoriously prone to underestimate the time required to complete a project, even when they have considerable experience of past failures to live up to planned schedules.” 1
What Causes the Planning Fallacy?
In his bestselling book, Thinking Fast and Slow, Kahneman gives a couple of reasons for the planning fallacy:
The optimism of planners and decision-makers. When we plan, most of us have a tendency to only imagine scenarios where everything goes according to plan. This means we underestimate the possibility of things that could undermine the plan and how they will affect the task or project.
An inability to imagine how our wishes will change in the future. For example, as Kahneman says, “Contractors of kitchen renovations and of weapons systems readily admit (though not to their clients) that they routinely make most of their profit on additions to the original plan. The failures of forecasting in these cases reflect the customers’ inability to imagine how much their wishes will escalate over time.” 2
There are other researchers who have proposed other explanations which all make sense depending on the situation such as:
Wishful thinking – We want to be finished the task or project quickly which makes us create an overly optimistic timeline. 4
Memory bias – It is like we get selective amnesia and fail to remember how long it took to complete a task or project previously. 3
Unique – We have a propensity to view the new task or project as unique even though it shares many traits with past tasks or projects.
Segmentation effect – We often create plans and estimate how long the overall task or project will take without looking at how long each subtask under it will take. 5
Why is the Planning Fallacy Problematic?
Our example of the Olympic Stadium in Montreal above is only one of many projects for which the planning fallacy has been blamed.
From the Sydney Opera House which opened 10 years later than planned and $95 million dollars over budget to the Denver International Airport opening 16 months later than expected and $2 billion dollars over budget, to The Big Dig in Boston which was completed 9 years late and $12 billion dollars over budget.
The planning fallacy can be applied to our personal lives too. Think about home renovations that go on too long, or filing taxes, or writing term-papers, or planning for retirement, just to name a few! All can be and are often impacted by the planning fallacy causing all kind of economic, social and other types of problems.
Is There Anything We Can to Do Counteract the Planning Fallacy?
Yes, there is, some of the ways to counteract the planning fallacy include:
(1) Take an “Outside View”
According to Kahneman, the idea is to get data from similar tasks or projects and to take an “outside view” of things.
He offers three steps to accomplish this:
(i) Identify a similar past task or project.
(ii) Obtain data or look back to see how long that similar project took in the past. Then create a baseline prediction for how long the current task or project should take.
(iii) Then use specific information about the current task or project to adjust your baseline prediction. In other words, look to see if there are specific reasons to expect the optimism bias to be greater or less than similar tasks or projects in the past.
(2) Use Implementation Intentions
One of the problems with planning tasks or projects is a failure to break down what needs to be done.
As we discussed in a previous post, implementation intentions contain 3 steps:
(i) Specify the ‘What’
This is where we need to set your specific goal, “I want to achieve X!” The stronger your intention, the better!
(ii) Think About Steps You Need to Take and Obstacles That May Stop You
Next, figure out different things you need to do to achieve your goals as well as obstacles that may stop you. Do you get distracted by certain things? Do you have certain weaknesses that change your behavior? Are there specific things you need to do? Or are things you need to stop doing?
(iii) Create implementation intentions or ‘if-then’ plans
Lastly, you need to create implementation intentions or if-then plans:
“If/when <fill in the blank> happens, I will do <fill in the blank>.
(3) Consider Obstacles Ahead of Time
Summon good ‘ol Murphy’s Law to think about obstacles that could mess up your plans ahead of time.
(4) Leverage the Segmentation Effect
This sounds obvious but when planning, make sure to look at how long sub-tasks will take to help project the overall time more accurately.
“The Montreal Olympics can no more lose money than a man can have a baby”
Were the words of Montreal mayor Jean Drapeau as we saw in the introduction.
The stadium which was slated to be completed in 1972 was not fully completed until 1987!
And while initial projections had it coming in at a cost of $134 million, by the time it was all said and done it came in at over $1 billion dollars!
So, while a man still cannot have a baby, there is no doubt that politicians are able to give birth to cocky and obnoxious one-liners and huge amounts of debt conceived by none other than the planning fallacy!
Until next time, keep counteracting the planning fallacy and as always…PYMFP!
–Rick
Use it or Lose It
A few strategies we discussed above to counteract the planning fallacy include:
(1) Taking an “outside view”
(2) Using implementation intentions
(3) Consider obstacles ahead of time
(4) Leverage the segmentation effect
When to Use It
When you are planning a task or project.
What Do You Think?
Have you ever been a victim of the planning fallacy? Do you have any other strategies you use to counteract it? Please discuss in the comments below!
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References
1 Kahneman, Daniel; Tversky, Amos (1979). “Intuitive prediction: biases and corrective procedures”. TIMS Studies in Management Science. 12: 313–327.
2 Thinking Fast and Slow
3 Roy, Michael M.; Christenfeld, Nicholas J. S.; McKenzie, Craig R. M. (2005). “Underestimating the Duration of Future Events: Memory Incorrectly Used or Memory Bias?”. Psychological Bulletin. 131 (5): 738–756.
4 Roger Buehler, Dale Griffin, and Michael Ross (1994) “Exploring the “Planning Fallacy”: Why People Underestimate Their Task Completion Times”. Journal of Personality and Social Psychology. Vol. 67, No. 3.366-381
5 Forsyth, D. K. (June 2008). “Allocating time to future tasks: The effect of task segmentation on planning fallacy bias”. Memory & Cognition. 36 (4): 791–798
This is one of your best. When ever a politician states a number (time or cost) to the public, automatically multiply it by three or four I remember the Montreal fiasco – to complete the stadium , change the spec to delete the retracting feature,, so it became an indoor stadium. which had the reputation of being the absolute worst ever venue in professional baseball. Primary reason why the Expos moved to Washington. Yes, it was named Olympic Stadium, but instead of being the “Big O” it became the “Big Zero”.
Politicians routinely underestimate both time and money. They should wise up – instead of saying “this (monument/building/bus terminal) will cost $3 million and be ready in 2 years, they should announce a cost of 9 million and ready in 6 years. That way, if the project comes in either under budget or in quicker time, they can brag about it instead of making excuses. Yes, politicians are basically stupid. They never plan for contingencies.
Hosting an Olympics almost always guarantees going into debt. Look at Athens, where the Olympic debt darn near bankrupted the entire country. Facilities are built, used once, then left to rot away into dust.
OK, off my soapbox. I do have some of the commemorative coins for the 76 Olympics.
Hi Dave, Good thoughts all around and yes Olympics have been a big money losing proposition, especially lately. So many of the venues just sit empty now and like you say rot away to dust, such a shame. Be good, Rick