Just The Amount Of Towards Anticipate Towards Pay Out Contracted Out Business Intelligence Analys – Where this bias occurs Individual impact Systemic impact Why it happens Why it matters How to avoid it How it all started Example 1 Example 2 Summary Related TDL articles
Describes our tendency to underestimate the time it takes to complete a task as well as the costs and risks associated with that task – even when it contradicts our experiences.
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Most of us work and live in environments that are not conducive to sound decision making. We work with organizations of all sizes to identify sources of cognitive bias and develop tailored solutions.
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Suppose John, a university student, has a paper a week from today on Friday. John has written many papers of similar length before, and it usually takes him about a week to complete. However, as he plans how to divide his time, John is positive that he can complete the assignment in three days, so he does not start until Tuesday. Finally, he doesn’t have the paper finished in time, and needs to ask for an extension.
As the name suggests, a lack of planning can cause us to plan poorly for the future, leading us to make decisions that ignore realistic estimates of the demands of a task (whether time, money, energy, or anything else). It also leads us to reduce the elements of risk and luck; Instead, we focus only on our abilities—and perhaps an overly optimistic assessment of our abilities at that.
The planning fallacy affects everyone, whether they are graduate students, city planners, or CEOs of an organization. When it comes to large-scale enterprises, from disruptive construction projects to costly business mergers, many people’s livelihoods (not to mention lots of money) are at stake, and poor planning has widespread economic and social consequences.
In general, we tend to be positive. We have optimistic expectations of the world and other people; We are more likely to remember positive events than negative ones; And, most relevantly, we tend to favor positive information in our decision-making processes.
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When it comes to our own abilities, we are particularly vulnerable to making accurate judgments. As an example, take a study in which incoming university students were asked to predict how they would perform academically compared to their classmates. On average, participants believed they would outperform 84% of their peers.
Of course, this figure may be accurate for some individual students, but it is mathematically impossible.
All of this means that when we plan a project, we are likely to focus on hypothetical successful outcomes rather than potential pitfalls, and we are likely to overestimate that we (and our team members ) how capable they are of accomplishing certain goals. While enthusiasm is certainly important for any venture, it can be toxic if it comes at the expense of being realistic.
Anchoring is another type of cognitive bias that plays a large role in the planning fallacy. It was coined by Muzaffar Sherif, Daniel Taub and Carl Hovland. There is a tendency to rely heavily on anchoring initial information when we are making decisions.
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When we draw up an initial plan for a project, we are biased to keep thinking about those initial values—the deadline, the budget, and so on.
Anchoring is especially problematic if our original plans were unrealistically optimistic. Even if our initial predictions were massively wrong, we still feel bound by those numbers as we try to reassure them. This leads us to make infrequent adjustments to our plans as we move forward, preferring to make minor changes rather than major changes (even when major changes are necessary).
Even if we take external information into account, we tend to downplay pessimistic thoughts or data that challenge our optimistic outlook. This is the flip side of our positivity bias: Our preference for positive information also makes us reluctant to consider negative sides.
In the business world, an example of this is known as competitive neglect, which describes how company executives fail to anticipate how their competitors will behave because they are so focused on their own organization.
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For example, when a company decides to enter a fast-growing market, it often forgets to consider that its competitors are likely to do the same, thereby reducing risk.
More generally, we often make attribution errors when considering our successes and failures. While we attribute positive results to our talent and hard work, we attribute negative results to factors beyond our control. This makes us less likely to dwell on past failures: we believe that we were not at fault in those instances, and we assure ourselves that the external factors that caused us to fail will not recur. .
Organizational pressure to complete projects quickly and without problems is a major reason why a lack of planning can be so harmful. Workplace cultures can often be highly competitive, and there may be costs to individuals who have a less enthusiastic opinion of a project, or who place a greater emphasis on timelines than others. At the same time, executives may favor the most optimistic predictions over others, giving individuals an incentive to engage in inaccurate, intuition-based planning.
This lack of planning has consequences for both our professional and personal lives, leading us to invest our time and money in ill-fated ventures, and keeping us tied to those projects for far too long. Research has demonstrated how widespread this bias is: in the business world, it has been found that more than 80% of start-up ventures fail to achieve their initial market-share goals.
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Meanwhile, in the classroom, students report that they completed about two-thirds of their assignments later than expected.
In some fields, such as venture capital, a high rate of failure is often perceived as a normal level of risk and seen as evidence that the system is working as it should. However, cognitive scientists such as Dan Lovallo and Daniel Kahneman believe that these statistics have much to do with cognitive biases such as the planning fallacy.
If more people knew about the lack of planning, they could take steps to counteract it, such as those described below.
, the rules will not apply to us. Most of us have a strong preference to follow our gut, even when its predictions have been wrong in the past. What we can do is plan around the planning fallacy, building steps into the planning process that help us avoid it.
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There are two types of information available for people to use when planning: singular information and distributional information. Singular information is evidence related to the specific case under consideration, while distributive information is evidence related to other similar actions that were accomplished in the past.
Ideally, both univariate and distributional information should be taken into account when planning. Planning pitfalls are likely to arise when we rely solely on the inside view—that is, when we ignore outside information about how likely it is to succeed, and instead focus on how expensive a project will be. Let’s rely on our intuitive guesses about it. Unfortunately, this is what many of us do. Because planning is an inherently forward-looking process, we are inclined to look forward rather than backward in time. This leads us to ignore our past experiences.
Supplementing planning processes with deliverable (external) data, wherever possible, is a solid way to reduce expectations for a project.
If an organization or individual has completed similar projects in the past, they can use the results of those past experiences to set new goals. It is equally useful to look outside of your own experiences and see how others have fared. The key point is to make a deliberate effort not to rely only on intuition.
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Another strategy to counter the planning fallacy is illustrated by a study from the Netherlands, where study participants were given a writing task and asked to complete it within a week. The participants were divided into two groups. Both groups were instructed to set goal intentions, indicating the day they wanted to start writing the paper, and the day they believed they would finish. However, the other group was also given implementation instructions, specifying what time of day and where they would write, and they were asked to follow through on their plan on their own.
At the same time, doing so did not reduce participants’ optimism; On the contrary, they were even more confident in their ability to accomplish their goals. They also reported fewer interruptions when they were working. This may be because the process of thinking through the specifics of completing a task resulted in a stronger commitment to follow through on one’s plan.
These results suggest that optimism is not incompatible with realism, as long as it is combined with carefully thought-out planning.
A related strategy involves breaking large projects down into their component parts and then planning to complete smaller sub-tasks rather than the entire project. As bad as we are at estimating the amount of time needed for relatively large tasks, research has shown that we are
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