Human beings are astonishingly bad at estimating how long it will take to complete tasks:

Despite ample available information, 90 percent of high-speed railroad projects have missed budget and passenger estimates, with an average overestimation of passengers of about 100 percent and underestimation of budget of about 50 percent.

The Sydney Opera House may be the most legendary construction overrun of all time, originally estimated to be completed in 1963 for $7 million, and finally completed in 1973 for $102 million. (More examples in this list of cost overruns).

The Planning Fallacy is a term coined by Daniel Kahneman -winner of The Nobel Price in Economics (2001)– and Amos Tversky in the book Think, Fast and Slow. 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.

Why are we prone to the planning fallacy? Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters optimistic overconfidence.

We all suffer from the planning fallacy when we make estimates. We feel the pressure of judgment on our estimates, and unconsciously seek approval by providing optimistic and incorrect numbers.

Hofstadter’s Law formulates the cognitive puzzle embedded in this fallacy: It always takes longer than you expect, even when you take into account Hofstadter’s Law.

Knowing about the Planning Fallacy isn’t enough to escape its influence. How can we mitigate its effect? One way is using the following three steps:

1. Identifying a comparable effort, historical project: an appropriate reference class (kitchen renovations, large railway projects, etc.).
2. Obtaining the statistics of the reference class (cost per mile of railway, the percentage by which expenditures exceeded budget), using them to generate a baseline prediction.
3. Using specific information about the case to adjust the baseline prediction.

If we believe 100% in some big upfront advance plan, we’re just lying to ourselves.

Summing-up: There are many ways for any plan to fail, and although most of them are too improbable to be anticipated, the likelihood that something will go wrong in a big project is high. We know that plans are nothing and planning is everything, and we also have to work to mitigate the Planning Fallacy by basing our predictions on historical statistical information adjusted for the specific project we are currently working on.