Why Planning Sucks – Planning Fallacy Approach

Planning sucks

Yeah we know! We have been told this many times, especially in the last few years. Tools such as Eric Ries’ Lean Startup have gained tons of momentum. “Fail fast” mantras have spread around the (startup-) world like viruses, except they usually don’t bring disease but rather cure. “Trial and error” (while minimizing waste of resources) is another accepted methodology amongst entrepreneurs. They say business plans are a thing of the past, at least in the early stages of startup ventures. I could go on…

Planning sucks and we know it. What we do not fully understand yet, are the precise reasons for it. Today, I want to give an explanation that hasn’t been given the attention it deserves: we humans just aren’t good at planning. I will approach the subject from a psychological point of view and explain why we have to accept that and find other ways to be successful in a business- and startup-world that suffers from ever-increasing complexity.

Planning fallacy – a cognitive limitation

“The planning fallacy is a tendency for people and organizations to underestimate how long they will need to complete a task, even when they have experience of similar tasks over-running” (wikipedia). It was first introduced by Daniel Kahneman and Amos Tversky in their 1979 paper titled “Intuitive prediction: biases and corrective procedures“. What’s interesting is the fact that this kind of underestimation only applies to ones own work, not when analyzing the work of others. Ever since its introduction it has been confirmed in multiple studies.

Bent Flyvbjerg, an economic geographer from Denmark (used to be professor of planning, currently professor of major programm management at Oxford university) specializes on the analysis of mega-projects. In his study “Underestimating Costs in Public Works Projects” he has analyzed roughly 260 mega-projects (e.g. Sydney’s opera house) and found that nine out of ten large infrastructure projects suffer from severe underestmation of costs. One of the main reasons he identified is uncertainty resulting from the long times large projects take to be completed. He also mentions different and unaligned incentives of people involved, and the underestimated need to individualize technology for every large project. Naturally, one wonders why planners don’t learn from their mistakes. The provocative argument by Flyvbjerg is plain and simple: strategic objectives lead planners to lie about their project, to make it look better on paper and have a better chance to secure funding, a circumstance he calls “survival of the unfittest”. Alas, it seems like the projects that look best on paper, are statistically the ones that perform the most out of sync with their schedule.

Planning fallacy extended – the nature of uncertain things

First, in 2003 Kahnemann and Lovallo extended the previous definition of the planning fallacy in their work “Delusions of Success“. They propose that beyond time other aspects should be included, namely underestimations of costs and risks as well as overestimations of benefits of one’s actions.

Second, the latest compelling argument against planning I have stumbled upon is proposed by Nicholas Taleb in his latest book Antifragile, in which he introduces things that gain from disorder (e.g. weightlifting, in which your muscle gets stronger over time when exposed to shocks). He makes the appealing case that the schedule of a project will always suffer from random events and shocks, because of the inherent nonlinear nature of it. There is no such thing as negative time, thus, unexpected happenings will always add time and costs to a project plan. A project, or a startup for that matter, is a fragile thing, which does not gain from disorder. This is an interesting addition/correction he makes regarding the planning fallacy theory. It is not just a psychological issue, but results from the nonlinear structure of projects. They are always hurt by randomness, a point most researchers before him have generally missed, but practitioners  (lean startup movement) have acknowledged (not always necessarily understood, though).

Planning in startups – the planning fallacy in action

Now, this line of thought is easily applied to the case of startups. They are operated by entrepreneurs, humans, who suffer from the cognitive limitations of sucking at planning. Moreover, they operate in extreme uncertainty for quite some time and usually have all the nonlinear characteristics of projects, which we have learned are, by nature, hurt by disorder.

Therefore, I argue that the planning fallacy should be regarded as a simple but powerful explanation as to why we shouldn’t rely on planning when starting up a business. Much rather, we have to be quick on our feet, that means: learn fast, minimize waste. Smart experimentation is the way to go, as we can’t predict the future. And in order not get lost, you should have an overarching big vision that will keep you focused in the mean time of trials and tribulations.

What are your experiences with your projects/startups? When your plan didn’t work out the way you thought it would, was it your own fault or was it the nature of the circumstances? Let me know…

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6 responses to “Why Planning Sucks – Planning Fallacy Approach

  1. Personally I dont think that planning is per se bad in a startup. As long as the founder is aware of the limitations of a plan, the high uncertainty being involved in startups and the likelihood that he has to change the plan, a good plan is actually pretty necessary. How else would a founder find out that assumption made in the past were right or wrong?

    However still a good post. I think the planning fallacy with all its implications is one of the most interesting aspects to keep in mind in project management. Especially “underestimation only applies to ones own work, not when analyzing the work of others” is hugely important. I might bring it up at our own startup http://www.honestly.de in the next couple of days. Now that I think about it: nobody should estimate his/her own tasks, but rather ask a colleague if he wants to estimate a given task.

    • You are right, that’s a very good point. I did formulate my hypothesis rather harsh, because I think the topic deserves attention. However, like you said, it does make sense to plan when one knows the limitations AND respects them, which most people do not. It is good to have a goal, scientifically experiment your way to success snd measure what your accomplishing as compared to what you were shooting for…as long as we accept that we can’t predict the future safely. I am interested in how the peer evaluation at Honestly works out and would love to hear feedback. Thx for your comment! It’s great to discuss…cheers

  2. Creating the business is like the creating an engine. All elements must fit in each other… creating the value, reaching the customer, selling the product or service and being profitable in the end. Your idea has to be confronted with a lot of reality as soon as possible and often (speak to customers, partners, experts etc.). The planning must be based on a clear vision and truth.

    Planning for action means asking: “What needs to be done?”. Designing an action plan is important for plain simple execution. If you don’t plan this thoughtfully you and the team will always be insecure (“Are we doing the right things?”). And doubts kill execution.

    Draft the vision, make action plans for certain periods (weeks, months) and look back on fixed points of time. Were the hypothesis right? Did we design the action plan right? What did we learn?

    But besides all thinking, face reality soon and execute a plan. And have only one clear vision for all members of your team.;)

    I recommend the following ebook from Bridgewater’s CEO, Ray Dalio “Principles”. http://www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf

    • Thank you so much for your input! I def agree with the kind of realistic planning you describe: Scientifically test your way to get to where you want to be and reality check as often as possible whether your making progress. I will have a look at that ebook. Thx for your input, l greatly appreciate it.

  3. As said by the other comments, planning in itself is not the problem – certainly I don’t think that is a point Taleb makes. But you are right, plans often create more problems than they solve. I think it is an issue of scale and detail.

    I plan my day, using a electronic TODO-style app, it means I record what I hope to do tomorrow, or even next week. It helps me prioritise and organise myself more effectively. Because I am extremely forgetful, it reminds me what I need to do. Plans as lists of actions to do is good. When something else comes up, I will defer a planned activity if that is more important. Easy. Plans at a small scale are good.

    Blow that up in scale, to say a large project. Unless the project is highly automated and commoditised and lacks human decision input (unlikely), a highly detailed plan, your classical Gant-chart, is not worth the (generally large) effort taken to create it. Due to the effort the “plan” becomes an icon, invested with virtue and (terribly) a means of predicting outcomes. Plans at a large scale are bad.

    Unless they are at a low level of detail. “This year we are going to build a widget and sell it online”, is a good plan. In kicks the agile widget development process, iteratively building and testing what the widget will look like.

    • Hello Mick, thank you very much for your comment. It is very interesting to learn from your way to organize and plan. It seems like it leaves a lot of room to react to new information, which is great. This is the way to go, I think. What TODO app product are you using? I haven’t found the perfect one for me yet, so maybe that’s it. Otherwise I totally follow your arguments. Small scale, felxible types of plans are good (that’s what I was kinda trying to express with having a big vision/goal). Large scale, rigid plans bare a lot of fragility and take lots of effort that might turn out to be wasted. I am eager to learn more from your experience and will check out your website right away. Best, Julius

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