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"Planning Fallacy": Overly Optimistic Forecasting of Project Outcomes



(p. 250) This should not come as a surprise: overly optimistic forecasts of the outcome of projects are found everywhere. Amos and I coined the term planning fallacy to describe plans and forecasts that

  • are unrealistically close to best-case scenarios
  • could be improved by consulting the statistics of similar cases


. . .


The optimism of planners and decision makers is not the only cause of overruns. Contractors of kitchen renovations and of weapon 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. They end up paying much more than they would if they had made a realistic plan and stuck to it.

Errors in the initial budget are not always innocent. The authors of unrealistic plans are often driven by the desire to get the plan approved--(p. 251)whether by their superiors or by a client--supported by the knowledge that projects are rarely abandoned unfinished merely because of overruns in costs or completion times. In such cases, the greatest responsibility for avoiding the planning fallacy lies with the decision makers who approve the plan. If they do not recognize the need for an outside view, they commit a planning fallacy.



Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

(Note: ellipsis added; italics in original.)





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