The Planning Fallacy

The renovation company says, "Three months, no problem." It sounds reasonable to you too: a month for plumbing and wiring, a month for tiling, a month for carpentry and painting. You finally move in five months later.

Stranger still, almost everyone you know who renovated ran over schedule, yet when it's your turn, you still believe you'll be on time.

This is the planning fallacy: when estimating how much time or money our own tasks will take, we're systematically too optimistic, even when we know similar tasks have often run over.

Why it happens

• Inside view only: we start from our own plan and think through each step, "how long will this take," always imagining things going smoothly.
• Ignoring surprises: late materials, workers taking leave, rework, stuck approvals. Each is unlikely on its own, but together you're almost certain to hit a few.
• Wishful thinking: we want to finish early, so we're more willing to believe we will.

In one study, students estimated their thesis would take about 34 days on average; it actually took about 56.

How to guard against it when forecasting

• Take the outside view first: how long do similar tasks usually take? Ask your neighbors how long their renovations actually took, and check your own records for similar tasks (see lesson 2.2).
• Break it down and list the steps that could go wrong, estimating the chance of trouble at each (see lesson 6.1).
• Run a pre-mortem: imagine the task is already badly behind schedule. What's the most likely reason?
• For "finished on time" forecasts, give a lower probability than your gut says, or give a wider time range.

How to spot it in a review

If a forecast like "it will be done on time" or "it won't go over budget" didn't come true, look at what you based it on: did you rely only on your own plan without checking how similar tasks actually went? If so, the planning fallacy may have played a part.