Planning fallacy
The planning fallacy is a cognitive bias that leads people to underestimate the time, costs, and risks of future actions while overestimating the benefits of those same actions. This bias often results in unrealistic timelines and budgets, leading to projects and plans that fall short of expectations.
How it works
Individuals and groups often fall into the planning fallacy due to optimism bias, where they believe their skills, resources, and plans are better than those of others. This mindset results in underestimating the time and resources necessary to complete projects and tasks. When planning, individuals often ignore the complexities and challenges typically encountered in previous similar tasks.
Examples
- A construction project that was supposed to be completed in two years ends up taking four years due to unforeseen issues and delays that were not adequately accounted for during the planning stage.
- A software development team estimates that a new application will take six months to develop, yet the project extends to a year due to additional features and bugs that were unplanned.
- A student believes they can write a thesis in three weeks, but in reality, it takes them two months to complete due to additional research and revisions.
Consequences
The planning fallacy can lead to significant delays in project completion, cost overruns, missed opportunities, and a general sense of frustration and dissatisfaction among stakeholders. It can strain resources and often leads to the under-delivery of promised features or benefits.
Counteracting
To counteract the planning fallacy, individuals and organizations can implement strategies like using historical data and past experiences to inform estimates, breaking projects into smaller tasks with individual timelines, actively seeking out and considering potential risks, and incorporating contingency plans and buffers for overruns.
Critiques
Critiques of the planning fallacy suggest that not all underestimations are due to cognitive bias. Some may argue that external pressures, such as competitive markets or management expectations, force individuals and teams to present overly optimistic scenarios. Additionally, sometimes deliberate underestimation is used as a strategic tool to gain buy-in or approvals.
Fields of Impact
Also known as
Relevant Research
Explaining the Planning Fallacy: Progress Bias Underlies Optimistic Time Predictions
Roger Buehler, Dale Griffin, Johanna Peetz (2010)
Journal of Personality and Social Psychology
The Planning Fallacy: Cognitive, Motivational, and Social Origins
Daniel Read, On Amir (2005)
Advances in Experimental Social Psychology
Case Studies
Real-world examples showing how Planning fallacy manifests in practice
Context
A midsize fintech company decided to replace its legacy loan underwriting engine to support higher loan volumes and automated risk checks. Leadership set a hard target to launch before the end of the fiscal quarter to satisfy investor expectations and hit growth targets.
Situation
The CTO and product lead agreed on a 12-week development and integration timeline based on optimistic internal estimates and an expectation that most dependencies were 'straightforward'. Compliance, operations, and several legacy banking partners were told the migration would be completed on schedule and to prepare for a single big switch-over.
The Bias in Action
Project stakeholders anchored on the desired quarter-end date and generated overly optimistic task estimates, ignoring delays from similar past projects. The development team produced a schedule focused on ideal progress (no interruptions, perfect integration), and risk items were listed but given minimal time. Because the leadership wanted to present a clean launch story to investors, dissenting voices about integration complexity and regulatory sign-off were downplayed. No formal historical benchmarking or contingency buffer was used to adjust the timetable.
Outcome
Integration with legacy partner APIs required unexpected custom adapters and an additional security review, extending development by 18 weeks (actual time to launch: 30 weeks). The company incurred an unplanned $450,000 in contractor and overtime costs and missed projected loan origination revenue of approximately $1.2 million for the missed quarter. Investor confidence dipped; one institutional investor postponed a planned follow-on funding conversation citing missed milestones.