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What is the Planning Fallacy?
The planning fallacy can be summed up this way: people are bad at judging how long it will take them to finish something.
For instance, perhaps your work for a 10-year old small business in a niche market, with 2,000-3,000 social media followers. Your boss tells you that you need to grow that number to 100,000 in the next year. Your boss thinks it's entirely feasible. But is it, for an established small business in a niche market? Perhaps, but a year seems like a stretch, and this could be an example of the planning fallacy.
There are numerous such examples of the planning fallacy. But why does this happen and how can it be mitigated? We go over this in this lesson.
The causes of the planning fallacy can be boiled down to the following:
1. An under-reliance on one's own past experience in similar ventures.
2. The inability to truly understand how a snag in a lengthy process can delay things.
3. The dismissal of the past experiences of others, or not making an honest comparison of your capabilities to theirs in a similar project.
4. Blaming one's own past failures on outside events as opposed to one's inability to properly plan or account for precisely those same events.
So what kind of impact could this planning fallacy have? Let's paint a picture of just one possibility.
Acme Co is a construction company. It has been contracted by the city of Springfield to build a bridge. The projected cost: $100 million. Time to completion? 1 year.
Based on what though? Well, historically it has taken Acme 3 years to build similar bridges. But, this time around, Acme has more employees and more experience, and so the engineers estimate they can do a much faster job.
Besides disregarding their own past experiences in similar ventures, Acme also disregarded those of other competitors. They too, even with larger and more talented sets of employees, took about 3 years to build similar bridges in the recent past.
But comparing yourself to a competitor and their abilities and historical records isn't pleasant. It may reveal you're not all that great. So, the past experiences of others are either disregarded, or an honest comparison is never made.
This leads to optimistic predictions. Or, in other words, the planning fallacy.
The end result? The bridge takes 3 years to build, $200 million over-budget.
Can we mitigate the planning fallacy? Absolutely. Here are just some of the many ways this can be accomplished:
1. Look at your past experiences in similar projects. Is your timeline in-line with that?
2. Look at what competitors went through. Is your estimate in line with that as well?
3. Budget additional time for unexpected events you never experienced before. They can happen, you might have simply been lucky they haven't before.
4. Be honest about the amount of time and personnel you need to meet a deadline. It may be far more than you think.
5. Get an outsider to look inside. In other words, ask an outside expert to make a projection. They're likely going to make a slightly pessimistic, but still more realistic, assessment of your capabilities and deadlines than you are.
The planning fallacy refers to the notion that people are bad at estimating how long it will take them to complete something.
There are many reasons for why we're bad at this:
1. We tend to neglect past experiences. Instead, we should use the amount of time it took us to complete something as a frame of reference.
2. We don't like the idea of honestly comparing ourselves to competitors and how long they took to complete something similar. Who wants to find out they're not as good?
3. We base our perspective on the notion that little to nothing major will go wrong. Instead, we must assume a lot can go wrong and should budget for that.
4. We blame our past failure on outside factors instead of realizing we were late because we didn't budget for those outside factors.
Other than what was already mentioned, one other way to help you overcome the planning fallacy is to hire an outside expert to scrutinize your proposed timetable.
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