Five things Project Management can learn from Behavioural Economics

Planning and process are great, but so often projects fall behind or go over scope or over budget. It doesn’t matter how experienced team members are, how well planned the project, things can always slip behind.

Project managers use wash-ups and evidence-based planning to work out scales and timings plans, but bias (or optimism) tempers previous evidence: “we can do it better this time”. By nature quite rational characters, PMs and AMs often don’t account for the irrationality of team members, and the ever-present “unforeseen circumstances”.

Illusion of validity
We consistently overestimate our ability to interpret and predict outcomes based on our previous experience — essentially, we’re overconfident. If this happens at every level of a project planning/scoping/design/build/QA etc it potentially accumulates a huge amount of error in time/cost estimates. We need to remember that each team member will likely be underestimating the time and cost needs of their area, and factor that into each project step.

Planning fallacy
Daniel Kahneman, godfather of behavioural economics, says, “the existence of a plan tends to induce overconfidence”. When planning the steps that are required to complete a project, one imagines that they will all run typically, and therefore structures times and costs accordingly. But what if one step behaves atypically? Or two? The longer and more involved the process, the greater the probability that something will behave atypically. And that probability increases at a greater rate than our intuition would predict. So plan in contingency time, and then double it.

Confirmation bias
You’ve made your project plan; you think you’ve factored in the planning fallacy. You look back at the evidence of past projects to support your projections. We tend to build with the evidence that supports our already held beliefs and minimise the importance of evidence that is to the contrary. We should encourage team members with different perspectives to look at timing plans and project scopes who will be better placed to challenge them where necessary.

Rationality
We assume that we are rational beings, and our team members will act accordingly. But we don’t take into account procrastination, making tea, creative blocks, emergency client requests that take precedence over your project. All of which happen regularly, but aren’t regularly taken into account in timing plans. Every step/project phase should take this into account and plan in some buffer time accordingly — and likely twice as much overflow as you think you might need.

Process/positive reinforcement
Positive reinforcement about abilities (behaviour) increases performance, so it’s better to plan for short bursts of activity with regular reviews. We respond better to outcomes today than those we know are coming tomorrow. This could be one of the reasons behind the success of agile framework. Regular milestones and reviews are important and should be clearly communicated.

Even armed with this awareness of behavioural tendencies we’re still likely to fall prey to them. Communication and challenging assertions are the best way to allow for bias. Most of all we should keep process flexible to fit the team rather than trying to change the team to fit the process.