The planning fallacy relates to our tendency to systematically underestimate both the time and resources required to complete a given project.
One of my favorite examples is that of the construction of the Sydney Opera House. It was reportedly budgeted at $7m
, but ended up at over $102m. Not to mention it was delivered 10 years later that planned!
Psychologists Daniel Kahneman and Amos Tversky first studied and identified the planning fallacy. They found it is very hard to avoid, and that even with great experience us humans fall prey to it time and time again.
One reason we struggle with accurate estimating is that we tend to focus too narrowly (focalism
). We also tend to only consider the best possible outcome, and disregard how long similar activities took in the past.
Why is that interesting?
If you’ve ever worked on any kind of complicated project like building software, or a home, you would probably very quickly recognize the planning fallacy.
What can we do?
There are a few tricks that can improve our ability to estimate time and resources. Running a pre
mortem, using “reference class forecasting”, and assessing whether incentives are setup to encourage accurate planning. I wrote some more about those tools here if you want to learn more.
I’ll end with Hofstadter’s Law which might bring a wry smile:
It always takes longer than you expect, even when you take into account Hofstadter’s Law.