Daniel Lock's blog » business

Planning fallacy: why people can’t plan and what to do about it.

Daniel Lock — Tue, 15 Mar 2011 22:45:10 +0000

MANAGERS want to predict what revenue will be like in three months, or how long a specific project will take. But any prediction will be as good as predicting the weather in three months time: At best we will know what season it will be.

Even experienced project managers can’t get dates right. Take the Sydney Opera House which was initially estimated for completion in 1963 but was finished in 1972.

Now of course in the case of the Opera house, it may well have been caused by government failure. But it was almost certainly due to the planning fallacy.

Planning fallacy can be summed up by Hofstadter’s law – a cognitive scientist Douglas Hofstadter – which goes like this: It [a task or project] always takes longer than you expect, even when you take into account Hofstadter’s Law.

This is a cognitive bias problem of optimism which has been validated by researchers (this from Less Wrong):

Buehler et. al. (1995) asked their students for estimates of when they (the students) thought they would complete their personal academic projects. Specifically, the researchers asked for estimated times by which the students thought it was 50%, 75%, and 99% probable their personal projects would be done. Would you care to guess how many students finished on or before their estimated 50%, 75%, and 99% probability levels?

13% of subjects finished their project by the time they had assigned a 50% probability level;

19% finished by the time assigned a 75% probability level;

and only 45% (less than half!) finished by the time of their 99% probability level.

In almost all cases of these students, the estimates they gave of which they felt they would almost certainly achieve; in other words a highly conservative forecast, they rarely completed the task inside that time frame.

This is the planning (or forecasting) fallacy. People can’t plan.

Another study by Newby-Clark et. al. (2000), showed that there was no difference between asking the students for a realistic ‘best guess’ or ‘best case.’

The problem being that, when asked for a realistic scenario, people leave out all the things that could go wrong.

The way around this problem is to use a different perspective. Instead of looking at the task and making a personal judgement, look at what other similar projects, and find out how long the task took them.

This gets around the problem of people not imagining enough things going wrong. Remember Murphy’s law: if it can go wrong it will.

To add insult to injury, these studies showed that the more detailed people became in their planning, the likely they were to be very wrong. They became more optimistic by being more detailed. This detail orientation causes people to be over optimistic.

From Less wrong:

Likewise, Buehler et. al. (2002), reporting on a cross-cultural study, found that Japanese students expected to finish their essays 10 days before deadline. They actually finished 1 day before deadline. Asked when they had previously completed similar tasks, they responded, “1 day before deadline.” This is the power of the outside view over the inside view.

Take an outside view, instead of inside

So, the way to fix this problem is to look at a project that was broadly similar to the project or task to be undertaken as find out how long that actually took. This will give you an insight into how long to actually expect these projects to take to actually complete. Don’t consider the details of the project.

In the case of the students mentioned above, they were better off by looking at how long previous assignments took and using that as their estimates.

No doubt the executives will be disappointed with the proposed schedule and ask you to shorten it, which you will by considering the detail of the project, but it will take that amount of time anyway, so psychologically you should at prepare yourself for this.

Improving organisational change making

Daniel Lock — Mon, 21 Jun 2010 22:41:05 +0000

Bill Gates, in his book, Business at the speed of thought, quotes a study that 42 percent of all business reengineering projects were abandoned prior to completion. This survey was conducted in 1996, and based on my experience I’d say this holds true just as much now as it did then.

Gates goes on to say “Projects of only three to four months’ duration are going to have much lower failure rates.” It was true when he wrote the book in 1990’s as it is now.

“With short projects you are forced to make important trade-offs that will drive you to simplicity and focus. You’ll end up with goals that can be executed.”

Strategically, simplicity and focus, are critically important. I often come across six sigma people who want to rid the world of variation, and find statistical correlation between activities, and revenue generation where logically none can possibly exist.

For example, I’ve been helping a banking division foreign exchange sales team improve their sales throughput, the common question was how to manage the volatility of the market which causes spikes in inbound customer demand. The short answer is you don’t. It cannot be done.

Instead simplicity is the answer. Maintain a buffer of resources available on any given day in-case there is a spike. Maintaining a buffer is certainly more expensive; however is more than off-set by the increase in revenue by being available during peak periods of demand.

Projects sometime fail. This is because projects – especially reengineering projects – are dealing with uncertainty. Much of the work has never been done before. It’s a bit like renovating a house; building principles are known, but you don’t know what behind the wall your about to knock down. Finding out may change the entire project or stop it all together.

Breaking down projects into smaller chunks gives you strategic agility to manage uncertainty, allowing teams to make changes quicker, and prevent resources being allocated to a doomed project.

Gates articulates it well,

“If short projects fail—and a few do, for a variety of reasons—your loss in time and money is much smaller. It’s far easier psychologically to pull out and redirect your development team when people haven’t spent a year of their lives working on a project that is now going down the tubes.”

Breaking down projects has another benefit, it makes planning easier by reducing uncertainty. In report on factors contributing to BPR success said “Participants overwhelmingly indicated that the planning stage, where scope and roles were set, was the most important phase in the project.”

If you’re about to embark on a large reengineering project, or involved with one now. Consider breaking it down into 3 to 4 month intervals. Focus on delivering value during these periods, giving a two-fold effect of usable value sooner and less risk overall.

‘Helping Leaders build great organisations”

www.DanielLockConsulting.com

August 2009 – Strategic Innovation Newsletter: Tips for improving business processes

Daniel Lock — Thu, 13 Aug 2009 04:15:12 +0000

Strategic

Welcome to the August 2009 edition of Strategic Innovationnewsletter, a free monthly newsletter on leadership, strategy and innovation. Delivered on the first Tuesday of each month.

Back issues are archived for free downloading at www.DanielLockConsulting.com.

Follow Me, Follow You

I’m getting more into the online marketing space.

You can a find a page at Facebook and also LinkedIn.

Look forward to an online hand shake!

Tips for improving business processes

Streamlining suggests the trimming of waste and excess, attention to every little detail that might lead to improved performance and quality.
Streamlining provides a smooth flow.
With streamlining, the process will operate with the least disturbance to its surroundings.
Improvement of a process means changing a process to make it more effective, efficient, and adaptable.
Preventing means you change the process to ensure that errors never reach the customer.

The 10 cornerstone tools to streamlining

1. Eliminate bureaucracy

Bureaucracy occurs as organizations grow, because as each manager gets busier they hire someone new, which is fine, except they don’t hand off the decision making authority. After a few years of this ‘up and down the chain’ movement, you have bureaucracy.

2. Eliminate duplication

One of the most common places where duplication can be identified is in reporting or information. Always strive for having one point of truth, which can be accessed on demand, rather than having someone prepare this information.

3. Determine what adds value to the process

Evaluate every activity in the business process to determine its contribution to
meeting customer requirements.

4. Simplify

As humans we have an innate tendency to over complicate things. The quickest way to simplify, is to ask the key question: “What are we trying to do?” In other words, if in doubt start with objectives. Confusion and complexity usually come about through a discussion of alternatives before the objectives have been understood.

5. Think Rapid Response

Determine ways to compress cycle time to meet or exceed customer expectations and minimize storage costs. All ‘waiting’ time is wasted time. Waiting doesn’t add value to the customer; it makes them think you have forgotten them.

6. Use software and systems properly

Make effective use of capital equipment and the working environment to improve overall performance. There is a saying in the property development game about using land for the ‘highest and best use’, apply this to systems, equipment and software too.

The corollary of this is to not become technology centric. Rather technology must enable us to improve the process not introduce more problems.

7. Make it difficult to do the activity incorrectly

Then you don’t need quality checking, because it’s already done. Think of those ‘mandatory for completion’ fields in applications.

8. Reduce the complexity of the way we write and talk

Enough said.

9. Standardise – select a single way to do the activity

This means involving the key players in defining the ‘operational definitions’ and agreeing that there is in fact a best practice and consistent approach on how to do a particular task.

10. Involve your suppliers in your business

Create a structure and policy that encourages supplier feedback and partnership ‘big picture’ improvement – look for creative ways to drastically change the process to automate and mechanise.

Technique of the month: Involve your people

Process is all about people. People running the process know more about your business processes than the CEO ever will. But remember to follow these three key rights of the worker, and they will be loyal to the end;

I know what to do
I know how to do it
I know how I am going against targets set for me

How To Develop a Winning Strategy 8/10

Daniel Lock — Thu, 18 Jun 2009 19:30:31 +0000

[youtube=http://www.youtube.com/watch?v=T33yDB4Mu_k&hl=en&fs=1]

This 10 part video series “How to Develop a Winning Strategy” was filmed at National Speakers Association Australia event in Adelaide. I will post the 10 video’ here each Friday.

You’ve got a burning passion and you want to share it with the world.
The current economic conditions pose opportunities and threat. You need a strategy and you need it quick.
You have no time for theory and jargon, and you don’t need to change the world, just pragmatic strategy that delivers bottom line results.
This seminar will show you tips, and tools so you can develop an effective strategy for your organisation.