Because we usually feel that everything is going to go according to plan, we don’t pay nearly enough attention to potential problems and fail to account for them in our plans. That’s the key take-away message of this episode of the Wise Decision Maker Guide, which describes how to overcome the Planning Fallacy and keep projects from going over budget or over time.
Videocast: “Solving the Planning Fallacy”
Podcast: “Solving the Planning Fallacy”
Links Mentioned in Videocast and Podcast
- Here is the article about solving the planning fallacy
- The book Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters is available here
- You are welcome to register for the Wise Decision Maker Course
Hello everyone and welcome to another episode of the Wise Decision Maker Show. You probably heard the business advice that “failing to plan is planning to fail.” Failing to plan is planning to fail; it’s very frequent, very common and very misleading advice unfortunately. It really gets us in the wrong direction if we think that planning is a perfect thing, a great thing, and a good thing. That’s because plans often fail to survive contact with the enemy. This is a serious issue. When was the last time you saw a major plan project suffer from a cost overrun or maybe a time delay? It happens much more frequently than you think. For example, there was a major study of 2002 major construction projects, and it found that 86% of major construction projects went over budget. There was another study of major IT projects and it found that 84% of major IT projects went over budget and of the projects that went over budgets in the IT study, they went over budgets by more than 180%. That’s a lot. Now, such cost overruns can do serious damage to your bottom line, they can cost many hundreds of thousand, maybe millions of dollars depending on the situation.
Now imagine that you have a database implementation project, it’s suffers into a serious cost overrun and you need to decide to finish it up, then you take money out of the cyber security budget because you need to take the money out of somewhere and then because you took money out of the cyber security budget, you suffer from a serious hack and that leads to a major PR crisis. That’s a big, big problem, so there are ongoing rolling problems as a result of cost overruns; it’s not just a one-time thing.
What happens? Why does it happen? Why do we have so many cost overruns with our plans? Well, it’s because, what the research on this topic shows, is that when we make plans, strategic plans or plans for major projects, we tend to think things will go great. Things will go perfectly. Things will go smoothly. That is just what our intuitions tell us. That’s how we feel, so we make our project plans up so that will be the case especially If it is a team doing a project, they make a plan as though everything will go smoothly because none of them individually wants to say “Hay they will be a problem”, right.
This is due to a typical dangerous judgment error, a cognitive bias from which we all suffer, called the planning fallacy, where we envision that our plans will go according to plan, will go very smoothly. The way to deal with the planning fallacy, there is a way to deal with it as there is for all other cognitive biases, the way to deal with it is to plan for contingencies, very effectively and aggressively in advance.
Don’t just make plans, don’t think that failing to plan is planning to fail, have the mental mindset and the organizational policy, and the approach if you are a solopreneur to your individual business, that failing to plan for problems is planning to fail. Failing to plan for problems is planning to fail
We can address the planning fallacy but planning around it. You want to anticipate what kind of problems that might come up in advance and decide what strategies you are going to use to address them. You also are not going to always be able to anticipate all the problems and solve them in advance. That means that you are going to need to reserve quite a lot of resources, of time, money, social capital, whatever relevant to the project to address the planning fallacy, to address the planning fallacy, to address unanticipated threats, as well as to address unanticipated opportunities, you don’t want to miss out on those.
Let me give an example of how this would work in reality, as you deal with the planning fallacy. You want to, as part of dealing with the planning fallacy and unanticipated threats, try to break down into its component parts. For example, there was an IT firm that was struggling with a pattern of taking on projects that ended up losing money for the company in the end. So that’s obviously not good. What we evaluated. I came to the company as a consultant, disaster avoidance experts did and we looked at the specific components of the plan, we broke it down into its component parts and we found that the biggest unanticipated money drain for the company came from permitting the client to make too many final changes in the last stages of the project. As a result, the IT firm changed their project process to not permit that in the future.
Another example to address the planning fallacy, use your past experience to inform your future activities. There was a manufacturing firm in the midwest. A mid-sized manufacturing firm, which did heavy technological projects, each of its bids on the project was worth something like in the several millions. If it bid something like 2 million on a project and the project would end up costing 3 million, it would bid 3 million and it would cost 5 million because of the planning fallacy and because people thought things would go according to plan. They did not take into account previous projects. So, what we did, it was not that hard of a fix was to make sure that they’re future bids on projects always took into account their past project bids and made estimates based on past project bids. And that solved a great deal of the problem.
Now, for projects where you have little experience, what you want to make sure to do is get outside perspective from a source that you can trust and a source that is objective and doesn’t have a stake in the game.
There was a financial services firm who’s COO I was coaching, and they needed to move their headquarters. So, what I did was, I connected this COO to a number of other COOs who moved their headquarters, who I was also coaching and had them talk to each other. And this helped the financial services COO recognize a bunch of problems that she wouldn’t have recognized if she wasn’t connected to these COOs. For example, there were additional expenses to print new collateral materials, there would be lost employee productivity and just a lot of tensions, and conflicts about how people were fighting over new offices that she didn’t think about. So that helped her make a much better and more effective plan.
If there is one thing that you take away from the episode of the Wise Decision Maker Show, make sure that you address cost overruns. Address, the planning fallacy by remembering that failing to plan for problems is planning to fail. Again, failing to plan for problems is planning to fail
As always, this wise decision maker show is based on the blog and the longer article. It has a lot of citations and a lot more information, so check it out. It’s linked in the show notes, as well as a variety of other blogs.
What do you think about this episode? Let me know in the show notes, let me hear from you. Click like if you like this episode and make sure to share it with others, so that other people can make more effective plans. Make sure to subscribe and follow the wise decision maker show and also check me out on social media, follow it there.
You can learn much more from my book. Never Go with Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters.” And of course, you can get the free resource of the Wise Decision Maker Course, 8 module course, video based course which has a lot more information on these topics, of course, linked in the notes. I hope to see you on the next edition of the Wise Decision Maker Show. Until then, wise decisions to you.
Bio: Dr. Gleb Tsipursky is an internationally-recognized thought leader on a mission to protect leaders from dangerous judgment errors known as cognitive biases by developing the most effective decision-making strategies. A best-selling author, he wrote Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters (Career Press, 2019), The Truth Seeker’s Handbook: A Science-Based Guide (Intentional Insights, 2017), The Blindspots Between Us: How to Overcome Unconscious Cognitive Bias and Build Better Relationships (New Harbinger, 2020), and Resilience: Adapt and Plan for the New Abnormal of the COVID-19 Coronavirus Pandemic (Changemakers Books, 2020). He has over 550 articles and 450 interviews in Inc. Magazine, Entrepreneur, CBS News, Time, Business Insider, Government Executive, The Chronicle of Philanthropy, Fast Company, and elsewhere. His expertise comes from over 20 years of consulting, coaching, and speaking and training as the CEO of Disaster Avoidance Experts, and over 15 years in academia as a behavioral economist and cognitive neuroscientist. Contact him at Gleb[at]DisasterAvoidanceExperts[dot]com, Twitter @gleb_tsipursky, Instagram @dr_gleb_tsipursky, LinkedIn, and register for his free Wise Decision Maker Course.