The Biggest Risk is You! – Why projects fail and what we can do about it

This article explores the types of biases that lead to problems in project planning, how we can become more aware of these biases, and what we can do to improve planning accuracy.

Projects struggle to stay within budget and deliver promised benefits

When we start a project, we have to plan a lot of things. How long will it take? How much will it cost? What benefits do we expect? These assumptions determine whether a project is approved or not. Unfortunately, these assumptions are often a shot in the dark and prone to error. Many projects fail to stay within the promised budget, and the promised benefits fall short of expectations.

In 2021, Bent Flyvbjerg and Dirk Bester examined more than 2,000 public infrastructure projects and came to some disturbing conclusions. On average, costs were almost 40% higher than originally estimated. Almost none of them delivered the promised benefits.

One reason for these discrepancies is poor project planning. Project managers often fall victim to their own biases that affect the planning process. This is natural, as we all have biases. A 'bias' is a tendency to perceive reality differently than it is, leading to irrational decision-making behaviour without us being aware of it.

Why estimating costs and benefits is particularly difficult

Why couldn't the project stay on schedule? When this question is asked, changes in project scope, complexity or unforeseen events are usually cited. This may be true, but it only scratches the surface. The deeper cause is misjudgements in the planning process.

These misjudgements are essentially based on two biases that come into play: Optimism Bias and Political Bias, also known as Strategic Misrepresentation.

Optimism bias is best known through the work of the late Nobel laureate Daniel Kahneman. Optimism Bias describes the systematic underestimation of the cost and duration of projects without us being aware of it. We have a poor sense of how long something will take. We are equally bad at estimating how much something will really cost. Without realising it, we often base our assumptions on the best-case scenario. The good thing is that this delusion ensures that we don't shy away from big tasks. But when such errors of judgement come into play in project planning, the consequences can be dramatic. For example, the Sydney Opera House was estimated to take 4 years to build but ended up taking 14 years.

Optimism bias makes us unaware that our estimates can be (way) off the mark. But what if we deliberately and intentionally miscalculate the costs and benefits of projects? The famous architect Jean Nouvel once said that he didn't know how much his buildings would cost. Often, the initial cost is an assumption of what the public will accept, with the real cost revealed as the project progresses.

This deliberate misrepresentation is known as strategic misrepresentation. It is a politically motivated distortion. Key figures such as costs, duration and benefits are deliberately distorted to make the project look excellent on paper. This phenomenon is most common in large projects. One example is the 2004 Athens Olympics, where costs and benefits were deliberately misrepresented to suit vested interests. Political Bias often results in projects that look excellent on paper moving forward, while potentially excellent projects are overlooked in the decision-making process.

Political Bias is less apparent in small to medium-sized projects, but Optimism Bias can affect project planning of all sizes. So, what can be done to improve planning accuracy?

What can we do to ensure more accurate estimating?

To reduce the impact of bias in the planning process, it is advisable to tackle the problem from two sides. We can review the planning process to help project managers make better estimates, and we can eliminate incentives to make deliberately inaccurate estimates. Ideally, we should also consider incentives that could motivate project managers to produce the most accurate estimates possible. The following is a brief outline of what a process review might look like.

Process review from an organisational perspective

1. Clarify which estimates should be reviewed
2. Research figures, data and facts against which the estimates can be checked. Experience from other projects may be a good starting point.
3. Compare your estimates with the data you have researched and highlight where there are discrepancies. Discuss whether the original estimates need to be adjusted again.
4. Ensure that planning quality becomes a mandatory part of your "lessons learned" documentation. Consider how the documentation can help you to plan more accurately and precisely in future projects.

Process review from the project manager's perspective

1. Document the criteria on which you based your assessment. Did you rely solely on your experience, or did you consider other perspectives?
2. Review your project planning regularly to see where you have made misjudgements in the past.
3. Clarify why there were misjudgements and what you can learn from them for the next estimate.
4. Create a powerful overview that allows you and others to check the quality of your project planning. This overview can help you to visualise your own development and is an excellent tool for differentiating yourself from other project managers.

Have the courage to take your time

These steps can help you take the quality of your project management to the next level. Be curious and think about what you can learn from successful projects. Take the time to set the right framework at the beginning. We promise that the implementation will be much more successful.

If you want to learn more about biases and what we can learn from behavioural psychology for project management, we recommend the famous books by Daniel Kahneman. Other valuable insights can be found in the work of Daniel Ariely and Gerd Gigerenzer.

If you need support with planning or implementing your projects, send us an email at [email protected]. We are happy to assist you.

Sources

• Flyvbjerg B., Budzier A. (2011). Why your IT project may be riskier than you think. Harvard Business Review, 89(9), 23–25.
• Flyvbjerg, B. (2021). Top Ten Behavioral Biases in Project Management: An Overview. Project Management Journal, 52(6), 531-546. https://doi.org/10.1177/87569728211049046
• Flyvbjerg B., Bester D. W. (2021). The cost-benefit fallacy: Why cost-benefit analysis is broken and how to fix it. Journal of Benefit-Cost Analysis.
• Gigerenzer G. (2018). The bias bias in behavioral economics. Review of Behavioral Economics, 5, 303–336.
• Kahneman D., Lovallo D., Sibony O. (2011). Before you make that big decision. Harvard Business Review, 89(6), pp. 51–60.