By Jerry Bishop

The Fallacy of Planning says we are terrible at planning how long something will take and how much it will cost. Restated another way, the planning fallacy is people’s tendency to underestimate what it will take to get something done. The phenomenon of the planning fallacy ought not be a big surprise to any CIO or project management professional given the attention it has received over the years. What may be a surprise though is the pervasiveness of the fallacy of planning in our organizations and the cumulative impact it has on IT and the CIO’s reputation for delivering results.

The fallacy of planning is just one of the many forms of cognitive bias that affect decision-making in every aspect of our personal and professional lives. Cognitive bias is when a persons’ judgment is affected by a lack of metal abilities or from the misapplication of one. Most often this is a decision-making shortcut resulting from insufficient information, social pressure, or personal motivations. Cognitive bias is a very powerful form of irrationality, where people act in opposition to what is expected under the rationale choice theory which requires consideration in every risk management plan.

Cognitive bias includes innumeracy which is a particular form of irrationality related to a person’s fundamental inability to conduct basic reasoning with numbers. It is a form of mathematics illiteracy often manifesting itself when dealing with really large (and small) numbers, probabilities, estimating, and even basic arithmetic.

What makes innumeracy so insidious is how pervasive it is in adults including highly educated professionals and how much we tolerate it because “math is hard”. Just consider the knit picking and tirades you have been witness to over innocent spelling or grammatical errors, yet hardly a peep when a gross error occurs in someone’s math or misapplication of statistics.

For CIO’s and IT governance committees the fallacy of planning introduces several forms of risk into IT decision-making that must be mitigated and documented in the enterprise risk management plan and every project risk management plan . The accuracy and reliability of a project’s total cost of ownership (TCO), return on investment (ROI), and internal rate of return (IRR) are all areas where gross errors can occur as a result of innumeracy. By themselves, an error in any one of these could be enough to make a bad project look good supporting approval ahead of others. When combined with errors in the estimates of financial and human resources required, project duration, or the risk management plan estimates things can really go bad.

Unfortunately, innumeracy affects other aspects of IT governance and decision making when it comes to effective portfolio management of the initiatives coming out developing IT strategic plans in support of business strategy. This includes any of the plan’s component parts like a focused technology plan or application portfolio management plan where importance of statistics and probabilities cannot be overstated. Similarly, the security plan and risk management plan depend heavily on developing defensible likelihood, probabilities and statistics.

Perhaps you find this interesting but since you were great at math and you’re one of those people whose resume says something like “….completes projects on time and on budget…” you think this doesn’t apply to you. Well, industry data collected over many years on IT project failures by the Standish Group, McKinsey and others demonstrates only 34% of projects are successful while 15% are failures leaving the remaining 51% as challenged where success is defined as on time, on budget and the expected outcome is delivered.

That is quite a disconnect from the on time and on budget crowd whose portfolio management system reveals a different story. This is the core evidence of the planning fallacy which must be addressed by every CIO’s quality control plan. We think we are better than we are – another cognitive bias.

It is because of the work of the Standish Group and their CHAOS reports the growth in project management profession began and we created project management offices in IT departments. But many have found the benefits of project management and portfolio management (PPM) have peaked. This is believed to be the result of placing the PMO in IT where the gains cannot reach the maximum potential until the PPM role is move to an enterprise function outside of IT. This notion is further supported by those believing there are no IT projects only business projects requiring IT resources. And so just as governance, risk and compliance (GRC) are enterprise functions so too should PPM.

CIO’s willing to tackle the planning fallacy have plenty of things they can do to make improvements.

  • Implementing Agile project management offers many benefits from iterative and incremental development regardless of which flavor of Agile project management used.
  • Implementing a portfolio management model even if it is paper based so you can begin measuring and managing project and resource performance and improving project estimating accuracy.
  • Conduct refresher training on project estimating, determining risks and calculating statistics and probabilities. Consider Six Sigma training to support your continuous improvements.
  • Formalize the financial models for TCO, ROI and IRR to simplify the calculations and to ensure uniformity between competing projects.
  • Develop a quality control plan to review portfolio management practices, risk management plan,
  • Train IT and non-IT managers on effective project management practices and ways to guard against innumeracy and other forms of cognitive bias.

But perhaps the most effective thing CIO’s can do to minimize the effects of the planning fallacy is to create a safe environment of trust for making planning decisions. This requires building a culture of sensibility where pragmatism is recognized for its benefits and ego driven plans are discouraged. It also means creating a culture where pulling the plug on a bad decision doesn’t come at the expense of anyone’s career.

Avoiding the planning fallacy also requires an ability to detect its origins and effects and a commitment to extinguish them through awareness and education.

Jerry Bishop is a transformational leader in technology and IT service delivery. He is exceptionally skilled at leading or coaching others in rapidly turning around under-performing IT departments. He does this by developing tactical plans that address underlying financial and operational issues while refining the IT strategy into an executable plan for supporting the organization’s priorities. This approach includes an IT Governance model tailored to each client’s unique culture and goals. You can read more from Jerry on his blog.

Original Post: http://www.pmhut.com/the-fallacy-of-planning

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