Ithuta JV

Source - Article by Bob Andrew

Cognitive biases are mental errors caused by our simplified information processing strategies. The human mind is limited in how much information it can process and in how much detail it can remember. In order to reduce the cognitive burden, we tend to take short cuts when solving a complex problem. These short cuts, called heuristics, may be simple for the brain to compute, but they introduce systematic errors, which are the basis for most of our cognitive biases, and become consistently and predictably embedded in our thought processes.

Cognitive biases are different from other forms of bias, such as cultural bias, race and gender biases and biases from one’s own self-interest, which are generally founded on emotional or intellectual predisposition toward certain judgements. Cognitive biases are mental errors.

A wide range of cognitive biases related to decision making has been identified by psychologists, which have great relevance to project management decision-making. Some of these include Negativity Bias, where we give more weight to negative experiences than positive experiences or other kinds of information, the Interloper/Consultant bias, where we value third party consultation as objective, confirming and without motive, the Neglect of Probability bias, where we disregard probability when making decisions under uncertainty, the so-called Semmelweis Reflex, where we tend to reject new evidence that contradicts an established paradigm, the Not-Invented-Here bias, where we ignore a product or solution that already exists because its source is seen as an ‘enemy’ or as ‘inferior’ and the Bandwagon Effect, where we have a tendency to do (or believe) things because many other people do (or believe) the same.

Kahneman and Tversky (1979) developed a theory for a Planning Bias, which has much relevance to project planning. They found that human judgement is generally optimistic when it comes to planned action due to overconfidence and insufficient consideration being given to the probabilistic nature of the information they use for planning. Because of this bias, according to Kahneman and Tversky, planners tend to underestimate costs, completion times and risks, but overestimate the benefits of the planned actions. The fundamental cause of this bias is the ‘inside view’ that planners take, where most focus is placed on the specific planned action and very little focus is given to actual outcomes of similar plans. Factors that planners perceive to lie outside the specifics of the project are ignored.

The problem of ‘authorisation imperative’,where financial approval is required along the way, can compound the effect of the planning bias. This often has a direct effect of causing the planner to underestimate the costs, believing it to be easier to get forgiveness for cost overruns than to get the project canned if the project is perceived as unaffordable.

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The Planning Bias has been recognised as being a major threat to project success. Reference class forecasting has been recommended as the way to counter estimating problems caused by the planning bias. In this way, conventional estimates should be benchmarked or validated against, or compared to, historical experience and past similar estimates. In this way, the appropriateness and competitiveness of the estimate are checked as well as identifying possible improvement opportunities. The key advantage of reference class forecasting is that different metrics are used than were used in the original estimate and in this way the effects of the planning bias are minimised.