Understanding and Overcoming the Planning Fallacy

We all know what it’s like to fall victim to the planning fallacy — an overly optimistic expectation of one’s own abilities that leads to overwork, cost overrun, and missed deadlines. 

People aren’t perfect, and no matter how good you are at your job and how long you’ve been doing it, you’ll never be able to perfectly estimate how long it will take to complete a task. While you’ll never be able to overcome the planning fallacy fully, you can face it head-on. 

This post will provide strategies and tools to lessen your chances of experiencing planning fallacy. Let’s get started. 

What is the planning fallacy? 

The planning fallacy refers to a phenomenon where one’s excess optimism causes them to overestimate their abilities and not allow themselves enough time to complete a task. In other words, the planning fallacy is a procrastinator’s worst nightmare: running out of time due to poor planning and too much confidence in one’s abilities.  

According to Decision Lab, behavioral economics experts Daniel Kahneman and Amos Tversky first coined the planning fallacy in a 1977 paper. They argued that most of us make plans for the future based on intuition rather than raw, tangible data. 

(Source: The New Yorker)

If you’re like most of us, you’re probably bubbling with examples from your own life where the planning fallacy has led to your undoing. If, for some reason, you’re not part of that shared human experience, here are some examples of the planning fallacy. 

Examples of the planning fallacy 

• Procrastinating at work. You may have had a blog post that you could have started earlier in the week, and now you’re scrambling to finish. It could be a meeting you keep pushing back, and now you have much more to discuss. The possibilities are endless with this example. 
  
• Paying taxes. In the United States, we have about three and a half months to do our taxes. However, about two-thirds of us wait until the final weeks. About 10-15% of us have to file an extension. 
  
• Submitting college applications. With so many adults suffering from the planning fallacy, why would high school students be any different? Studies have found that 1 in 4 prospective college students failed to finish at least one college application. 
  
• Buying plane tickets. We all know that the longer you wait to secure those plane tickets, the more the prices increase. Studies show that 28 to 35 days in advance is the sweet spot, but many wait longer and spend significantly more. 

These examples probably feel pretty familiar to you by this point. But if the planning fallacy is such a shared human experience, why do we continue to fall victim to it? 

Why Does the Planning Fallacy Occur?

The planning fallacy primarily occurs when positive outcomes are overestimated, and project scope is underestimated. But why do we continue to do this to ourselves? 

Well, maybe it’s worth looking to the guy who won the Nobel Prize in 2002 for discovering the concept. To me, Daniel Kahneman says it all with this quote: 

“An investment said to have an 80% chance of success sounds far more attractive than one with a 20% chance of failure.”

When it comes to the economy, we’re all salespeople. Selling concepts like the one above has become second nature to us. Whether you’re a consultant, a salesperson, or working on an in-house team, you’ve probably put statistics like Kahneman’s through the optimism machine without thinking about it. But of course, if projects fail, you can’t help but refer back to these moments. 

Beyond the basics, a few other phenomena contribute to the planning fallacy. 

Optimism bias

According to the BBC, over 80% of the global population possesses some optimism bias or the tendency to overestimate positive and negative outcomes. Many scientists cite optimism as a crucial evolutionary factor, and studies have shown that successful people tend to be overly optimistic. 

Still, there are concerns about optimism bias. The Decision Lab describes it well when they state that the real issue with optimism bias is a false sense of control that can be detrimental to one’s long-term well-being. 

Present bias 

Present bias is the tendency to prefer and seek immediate rewards over long-term planning. Think back to Kahneman’s example here. The immediate reward of selling a key stakeholder on a project often outweighs the long-term issue that a project has a 20% chance of failure. That’s present bias in a nutshell. 

Motivation

Let’s say you can successfully sell stakeholders with that optimistic spin Kahneman talked about. While you might ride the high of that immediate gratification for a while, it might not be sustainable. One of the other ways planning fallacy can hamper us is by creating an overly optimistic sense of motivation. 

When you budget time for projects, you must consider motivation, burnout, work-life balance, and other human factors. 

Other factors that contribute to planning fallacy

Beyond the core issues mentioned above, there are a few other vital contributors to consider. 

• Social pressure. Nobody likes a pessimistic person, right? Pessimists and even realists get a bad rap, even from psychologists in the experimental social psychology space. Social pressure to be optimistic often leads to false confidence.
  
• Resource constraints. Sometimes, we need to do our job with the tools we have. A lack of resources should derail projects, but sometimes, we have no choice but to win new business and make do with what we have. 
  
• Competitive environment. Hypercompetitive work environments are ripe with the potential to see the planning fallacy in full force. If you find yourself in a toxic environment where you need to force success, it comes with the territory. 

Negative effects of the planning fallacy

It’s weird to see optimism and negativity associated with one another in the same sentence, right? Unfortunately, that happens with issues stemming from the planning fallacy. Below are a few examples of adverse effects tied to the planning fallacy.

1. Project delays, budget overruns, and scope creep

In the advertising space, there’s an adage known as “under promise, over deliver.” The planning fallacy is the inverse of this adage. When you’ve over-promised a deadline, don’t be surprised if you start to under-deliver in the form of project delays. 

Underestimating time often translates to underestimating costs. Projects that take longer than expected typically require additional resources, leading to budget overruns and financial strain on the organization. 

When teams need to make up for lost time, they’ll start to see their budget take a hit. As they scramble to add more resources to keep with an overly optimistic deadline, costs will begin to sore.

With more money poured into a sinking project, you’ll see scope creep in the form of added admin work, more meetings, and a slew of other issues. 

2. Resource misallocation and poor decision-making

The planning fallacy impairs critical thinking and decision-making processes. Overconfident and unrealistic plans lead to poor strategic decisions, impacting the overall success of projects.

Once delays, cost overruns, and scope creep start chipping away at a project’s chances of success, those involved will begin to make mistakes. Resource misallocation is a big one. With not enough time to complete a project’s core objectives, it’s easy to make mistakes about where to allocate resources. 

3. Decreased productivity

When timelines are consistently underestimated, it can lead to rushed work, errors, and rework. This decreases overall productivity and hampers the quality of output. It also leads to one of the biggest issues of all. 

4. Increased stress and morale issues

Consistently unrealistic deadlines can create a high-stress work environment. Employees may feel pressured and overworked, leading to decreased morale, lower job satisfaction, and higher turnover rates.

5. Client and stakeholder dissatisfaction

Remember the concept of present bias mentioned above? This is where it really comes back to bite us. Promising an unlikely positive outcome puts more than just your team in jeopardy. 

Repeatedly missing deadlines can erode trust and confidence among clients and stakeholders. This dissatisfaction can harm the organization’s reputation and affect future business opportunities. 

Now that you’ve seen the potential pitfalls of falling victim to the planning fallacy let’s examine some strategies for overcoming it. 

Strategies to overcome the planning fallacy

By now, you’re probably feeling pretty down about optimism and maybe already considering reading some Nietzsche, getting into the fetal position, and becoming a raging pessimist — but fear not. There are ways to overcome the excess optimism of the planning fallacy. 

1. Implement buffer time

It’s okay to keep your optimism. If you think you can complete a project in four weeks and want to set that goal for yourself, that’s a great challenge to help you grow in your career. However, if stakeholders ask you how long the project will take, it’d probably be wise to build in some buffer time and give them a five to six-week estimate. 

2. Use historical data to encourage realistic optimism 

The Decision Lab also coined the term Reference class forecasting (RCF), a technique used to predict future outcomes by analyzing comparable historical events. It draws on decision-making theories under conditions of uncertainty. 

According to Daniel Kahneman and Amos Tversky, the real issue behind the planning fallacy is a tendency to choose intuition over tangible data. In the late 1970s, it was easier to accept leaning on one’s intuition. But in the modern digital landscape, we have a wealth of workforce analytics data at our fingertips to help predict and complete a future task. 

There’s no need to discourage optimism in the workplace when planning future tasks. With the right tools, you can create a culture of realistic optimism that helps your team back their optimism with realistic stats.   

3. Use time tracking, project management, and workforce analytics tools

The best way to gain historical data is to start tracking time. Time tracking is one of the most simple corrective procedures that a company can take to combat the planning fallacy. Fortunately, we know quite a bit about that. 

Tools like Hubstaff allow you to: 

• Track time and see real-time spending for each team member from your dashboard.
• See time spent on specific websites, apps, and even meetings with productivity data and the Insights add-on. 
• Track time to Tasks or to your favorite project management tools to set realistic deadlines, gauge project spend, and prevent scope creep for better project planning. 
• Create, automate, and email invoices, expense reports, and 20+ reports to key stakeholders. 

This might seem like a shameless plug, but we really believe in the power of using a workforce management tool. After all, we built this tool to solve our own time management issues. Nonetheless, let’s get back on track. 

Other key strategies for overcoming the planning fallacy

With better project scoping, historical data, and the tools to help you plan future tasks, you’re well on your way to preventing issues stemming from the planning fallacy to achieve a more cohesive, productive team.

That said, there are a few additional things that can help, like: 

• Seeking external feedback. If you’re guilty of excess optimism, maybe find one of your more realistic, honest colleagues, friends, or family who can test you a bit to help you find more realistic deadlines.
  
• Apply the Eisenhower Matrix. Productivity methods like the Eisenhower Matrix help you sort your work into four categories: Do, Schedule, Delegate, and Delete. This way, you can increase productivity and continue to provide optimistic deadlines. 

• Adopt Agile methodologies. You’re in for a bad time if you manage large infrastructure projects based purely on intuition. The best project managers embrace Agile and use the right tools. 
  
• Improve Communication. There is a balance between optimistic and pessimistic communication. If you’re struggling to find it, check out our guide to strong communication for tips. 
  
• Set SMART Goals. SMART goals are Specific, Measurable, Attainable (that’s the important one here), Relevant, and Time Bound. Ensuring they meet these criteria is crucial if you feel overly optimistic about goals or similar tasks. 

The final fallacy

Even with the right tools and strategies in place, there’s plenty of room for error in task completion times, how long projects take, and project spend any time we plan in our professional or personal lives. The key is to prepare for future tasks to go awry. 

With contingency plans and robust time tracking and workforce analytics solutions in place, you can use historical data to make informed decisions and limit the impact planning fallacy can have on your day-to-day life.