Project Management – Fast and Slow

By Klaus Nielsen, MBA, PMI-ACP, PMI-RMP, PMP & PMI-PBA

Introduction

Within the last 50 years we have witness a pyramid of project management tools and techniques however 9 out of 10 big projects (Flyvbjerg, 2012) consistently underperform in terms of costs and benefits. Such projects (Flyvbjerg, 2012) consistently end up costing more with smaller benefits than projected and almost always end up with costs that exceed the benefits. This is also an example of the planning fallacy.

The PMI Pulse of the Profession®: Capturing the Value of Project Management (2015) highlighted how the projects of high-performing organizations successfully meet goals two–and–a–half times more often, and these organizations waste 13 times less money than their low-performing counterparts. This paper will investigate some of the human factors.

This is not a book review of Kahneman’s Thinking fast and slow (2013) however it would help you greatly reading this paper if you are familiar with his work. It is impossible to exaggerate the importance of Daniel Kahneman’s contribution to the understanding of the way we think and choose. He is one of the most original and interesting thinkers of our time. There may be no other person on the planet who better understands how and why we make the choices we make.

After reading Kahneman’s masterpiece on human rationality and irrationality I was curious which is one of the best reason for investigating ideas and information. How does this apply to the field of project management and how can we avoid making bad decisions all the time? Call it an illusion but with improved tools and techniques and still a wide range of failed projects it seems to me that we are all making a lot of bad decisions which cause our projects to suffer due to biases, varies effects, fallacies, illusions or simply neglects.

Biases, effects, fallacies, illusions and neglects

In Thinking, Fast and Slow (2013) Kahneman discuss 3 biases, 12 effects, 4 fallacies, 6 illusions and 2 neglects. The following five sections will explain most of them and discuss them in a project management setting.

Biases in project management

Bias is an inclination or outlook to present or hold a partial perspective, often accompanied by a refusal to consider the possible merits of alternative points of view. The following illustrate examples of how the confirmation, hindsight and outcome biases are seen and counter in project management.

The confirmation bias is that you think your opinions are the result of years of rational, objective analysis (McRaney, 2010) however it is the result of years of paying attention to information which confirmed what you believed while ignoring information which challenged your preconceived notions. Experienced project managers tend to be familiar with what they think is best practice and how to do things properly however it is not necessary the case as a few selected tools and techniques may be applied while others are disregarded.

The confirmation bias is an example of selective thinking. In order to reduce the impact, you need to challenge the data, findings, best practice or process as people will tend to prefer data supporting their idea. In projects use experiments, prototypes and general involve more stakeholders and expert by which we may remove the ego or selective thinking, challenge the data by seeking disagreement and ask better questions. All in all, keep information channel open and do more extensive research and analysis.

The hindsight bias, also known as the knew-it-all-along effect or creeping determinism, is the inclination, after an event has occurred, to see the event as having been predictable, despite their having been little or no objective basis for predicting (Wikipedia, 2015) We experience this within risk management where unknown unknown risk is predictable despite having little or no objectives for these predictions.

In order to challenge the hindsight bias, first step is address that all events can’t be predicted. When you are surprised, bite your tongue before you say you are not surprised. It is not a sin to be surprised and it is a great opportunity for real learning. You need to challenge casual explanations. Still within Risk management brainstorming techniques and quantitative techniques like decision tree may support or illustrate other explanations.

The PMI Pulse of the Profession®: Capturing the Value of Project Management (2015) highlighted more rigorous risk management: This year, 83 percent of high performers report frequent use of risk management practices, compared to only 49 percent of low performers. Some may argue low performers suffers a higher degree of hindsight bias than high performers as it is likely that hindsight bias may reduce the maturity of risk management when we already know it all.

The outcome bias is that people tend to take outcome information into account in a manner that is not logically justified (Moore et al., 2008). Most gamblers may suffer from the outcome bias as they are familiar with the statistics however they disregard them or imply they don’t relate to them. As a project manager we experience this when other evaluate our work and decisions which is not necessary logically justified whether it’s good or bad. You made a decision, change the schedule, fast-tracked work or mitigated a risk however the outcome is not logically justified by others. A good decision can’t guarantee a good outcome.

In order to reduce the effect of the outcome bias you need to document important decisions during your day to day work, steering committee meetings and if things are not going accordingly to plan do the lesson learn or retrospective as part of showing that good decisions not always results in good outcome. In general, involve more decision makers in the decisions which also may reduce the blame game. The outcome bias is often witness in the development of the business case however the more documentation we include the less outcome bias we may experience.

Effects in project management

Kahnemanns identified 12 effects where some of them are illustrated here and discussed in a project management context.

The halo effect is the phenomenon whereby we assume that because people are good at doing A they will be good at doing B (Economist, 2009). In project management we conduct ongoing reporting to steering committees, PMOs, key stakeholders and similar however most may have experienced the halo effect as they will treat us lightly or harder depending on whether they view us doing good or bad. Some may recall McGregor’s X and Y theories and see the similarities. The halo effect is very common in teaching as grading of good student assignments tends to give a good result while less good students receive a less good result. One method is to take the judgment out of the assessment and make the assessment more objective which also works well for status reports and similar rather than subjective measurements where the halo effect may strive.  If you conduct also of assessment of vendors, projects members and such try to anonymize the assessment or do them one by one in order to avoid making comparisons.

The endowment effect, also known as status quo bias is the that people often demand much more to give up an object than they would be willing to pay to acquire it. In project management we negotiate all the time whether it’s within the team, with stakeholders, vendors and such where we experience that most people would demand a considerably higher price for a product that they own than they would be prepared to pay for it.

Sometimes we can reduce this effect by taking feeling/emotions out of the negotiations. Independent evaluation and/or increased empathy may also help in these cases. The endowment effect may be influenced by many factors such as ownership, demand, attachment and such which mostly are soft and subjective aspects which must be reduced by making more objective comparisons. If you are procuring one product look for alternative products or solutions, focus on specifications rather than attitudes.

The anchoring effect is the phenomenon where the project manager rationally analyzes all factors before making a choice or determining value however the truth is that your first perception lingers in your mind, affecting later perceptions and decisions. In project management we analyze the constraints and most aspects of the projects however we could severely limit this work, if we pick our first choices. This also greatly reduce the value of project management tools and techniques, if the result is already determined based upon our first perception.
In agile planning poker is an excellent technique to overcome this as you will be forced to argue with peers. An alternative is using comparisons. Whatever the reason for it, the anchoring effect is everywhere and can be difficult to avoid. Also an easy applied method is one group of people making the analyzes while others determine the outcome. Devil’s advocate is a quick method to challenge the first perception that lingers.

Fallacies in project management

A fallacy is an incorrect argument in logic and rhetoric which undermines an argument’s which are illustrated below from project management.

The sunk-cost fallacy is the phenomenon that you think you are making rational decisions based on the future value of objects, investments and experiences, but actually your decisions are tainted by the emotional investments you accumulate, and the more you invest in something the harder it becomes to abandon it. We invest in one solutions and we do all it takes to make it work.

However, making more prototypes, experiments and similar may firstly reduce sunk-costs and secondary make it easier to make the change before too much emotional investment are invested. The same goes with planning where rolling wave planning, successive elaborations or go agile which may lessen the rate of changes.  If you are investing or playing poker you know all about the sunk-cost fallacy and how bad people are at cutting their losses. The same goes for projects which are not closed in due time as funds has been spent on it. Keep the business case alive during your project and challenge it as often as possible in order to challenge the sunk-cost fallacy until its clear for all that the decision is tainted by emotional investments. The same can be applied with varies judgments in project management where estimations have a long and painful history. Challenge the estimates constant due to the cone of uncertainly but also in order to reduce the fallacy when you know the estimates are wrong but some are sticking to them as they have said it can be done in that time. With estimates you can challenges the estimates i.e. 3-ponts estimates in a quick and easy fashion by applying additional tools and techniques such as parametric, analogue, function points and what’s available in your organization.

The Planning Fallacy (Flyvbjerg, 2012) is the systematic fallacy in decision making causing people to underestimate the costs, completion times, and risks of planned actions, whereas people overestimate the benefits of the same actions. This is perhaps the most common fallacy witness in project management.

The British HMS treasury green book public sector five case business case model takes this into account (optimism bias adjustment) and recommend that costs are increased and benefits reduced by several factors when developing the business case where the planning fallacy often are seen.

First step is accepting the planning fallacy and take the needed considerations. Whether you need to apply estimates with an additional factor do it. Apply more tools and techniques for more results and document the calculations and considerations in order to challenge the data and learn from the mistakes being made. In this case the PMO should also play a major role as the planning fallacy should be reduced by constant follow ups on the projects.

Illusions in project management

Illusions are something that deceives by producing a false or misleading impression of reality which are illustrated below with regards to project management.

The control illusion is tendency for people to overestimate their ability to control events. It’s a paradox in project management as our job is all about managing and controlling a projects based on varies constrains but in reality the control is to some degree an illusion. In order to counter this, we should increase emphasis on making changes as the rate of changes would increase with lack of control and not taking too big steps as changes would become more difficult which points us towards more agile projects. Not being said we can’t control anything however we need to understand that full control is an illusion. We like to say project management is all about communication but perhaps we should be better to explain our key stakeholders, team members and sponsors that we can do so much but full control is not possible. Many of the problem-solving tools i.e. Cause-effect, root cause, 5Whys and such available work so well because they can minimize or eliminate human errors in judgement and works well with the illusion of control.

The focusing effect or focusing illusion is a cognitive bias that occurs when people place too much importance on one aspect of an event, causing an error in accurately predicting the utility of a future outcome. In project management we place high focus on conducting our projects by the book. We conduct the stakeholders analyze, identify risks, create the WBS and so on however to some degree it might be an illusion for predicting the future. We place very high value on managing the constraints in order to predict the future outcome of the project however more emphasis on day to day projects management and actually delivering the outcome may help creating the future outcome rather than predicting it.

In my experience I do less and less formal detailed planning and more and more communication and change management as my plans only to some degree tends to predict the future. Off course I still plan a lot but how often are you plans correct?  The focusing effect is different to avoid completely, its fine to use the lesson learned but don’t look back with too much optimism. More emphasis on retrospectives than lesson learned also in waterfall projects.

Neglects in project management

Neglects are something we pay little or no attention to where Kahneman pinpoints two which are illustrated and put into project management context.

The denominator neglect is the focus on the number of times a target event has happened without considering the overall number of opportunities for it to happen. In project management we identify risk and in some cases risks occurs and we have an issue. The risk register is updated and often the risk is crossed out as it is no longer a risk, but an issue. However, it some cases it may happen again and again. The risk for delays, increase costs, lack of resources, requirements not elaborated, lack of stakeholder’s engagement and so forth. Most events on most projects are properly fairly well known but partly due to the denominator neglect we mismanage them.

The duration neglect is the phenomenon that people’s judgments of the unpleasantness of painful experiences depend very little on the duration of those experiences. Some team members may be talked into doing some extra work for a period of time or conducting a presentation for a group of hostile stakeholders. Whether the amount of extra work were just a few hours or days or the presentation was a onetime event, some may take it as several on months of extra work or a range of presentations in hostile environments. This implies the experience of the times is to some degree static and should be considered equally no matter the time spent. In my line of work few people take big turns while others are not involved as the hassle is not linear with the event, so it’s not worth the effort.

Neglects are to some degree possible to avoid however it requires the right mindset where some may find inspiration by Carol Dweck (2006) and her research on the agile mindset and how the mindset may affect success.

PMI Process Groups and Knowledge Areas applied Kahneman

The table illustrate the knowledge areas of the PMI PMBOK 5. edition on the left side while the examples illustrated are aligned on the right side in order to give a tentative view on where they might occur. Kahneman PMBOK

This is by no means complete or final, just the first steps towards a broader understanding and application of Kahneman in project management. Several of the examples from Kahneman may be applied in several knowledge areas however this has been simplified for a broader understanding.

Waterfall or agile

The varies biases, effects, fallacies, illusions and neglects may to some degree be strengthen or weaken depending on what system development method is applied. This is illustrated in the table and discussed in the following. The list is by no means final however is applied to illustrate the similarities, differences and perhaps where to be aware. The terms most likely and not likely are applied based upon a subjective judgment.

kahneman agile waterfall

The varies biases, effects, fallacies, illusions and neglects may happen in any kind of project no matter what system development approach is applied however it seems viable to me that the self-organized and collaborative teams may counter some of the effects and with control being very transparent it is likely the control illusion may be reduced when working in an Agile team.

Conclusions

The idea of this paper was to highlight how the varies biases, effects, fallacies, illusions and neglects illustrated by Kahnemann affects our projects, waterfall or agile and align them with the PMI environment. Moreover illustrate how the varies biases, effects, fallacies, illusions and neglects results in bad decisions in project management and some ideas how to avoid making bad decisions all the time which in the end should increase the outcome of our projects.

Recognizing and accepting how the varies biases, effects, fallacies, illusions and neglects is the first step in learning to address them both for yourself and more importantly in understanding how people in and around your projects behave.

I know the paper is not comprehensive or final in any way however I hope it has inspired you to dig deeper and help us understand the irrational behavior of decision makers and project managers alike. We started with Kahneman, so let’s end with Albert Einstein who said “If you can’t explain it simply, you don’t understand it well enough”.

About the Author

Klaus Nielsen, MBA, PMI-ACP, PMI-RMP, PMP and PMI-PBA is the managing director at Global Business Development in Denmark and an associate lecturer in project and program management at the IT University of Copenhagen, Denmark. Klaus has over 15 years of project management experience in managing and delivering complex, high-visibility information systems projects. He can be reached at kn@gbd.dk

References

Economist (2009) The halo effect. Retrieved from http://www.economist.com

Dweck, C. S. (2006). Mindset: The new psychology of success. New York: Random House.

Flyvbjerg, B. (2006) From Nobel Prize to Project Management: Getting Risks Right. Project Management Journal, vol. 37, no. 3, August, pp. 5-15.

Flyvbjerg, B. (2012) Quality Control and Due Diligence in Project Management: Getting Decisions Right by Taking the Outside View. International Journal of Project Management

Gino, F., Moore, D.A and Bazerman, M.H. (2008) No harm, no foul: The outcome bias in ethical judgments.  Havar Business School. Working paper. Retrieved from http://www.hbs.edu

Kahnemann, D. (2013) Thinking, Fast and Slow. Farrar, Straus and Giroux; Reprint edition

McRaney, D. (2010) Confirmation bias. Retrieved from http://youarenotsosmart.com

Project Management Institute (2014) A Guide to the Project Management Body of Knowledge: PMBOK(R) Guide. Project Management Institute; 5 editions.

Project Management Institute (2015) The PMI Pulse of the Profession®: Capturing the Value of Project Management. Project Management Institute.

Wikipedia (2015) Hindsight bias. Retrieved from https://en.wikipedia.org