Freakonomics – Why Your Projects Are Always Late — and What to Do About It (Ep. 323 Replay)

Intro

In this episode of Freakonomics, titled “Why Your Projects Are Always Late — and What to Do About It,” the hosts explore the reasons behind project delays and offer insights on how to address this issue. They delve into the planning fallacy, optimism bias, coordination neglect, and other factors that contribute to projects running behind schedule. The episode also discusses the importance of effective project management tools, the use of algorithms for accurate predictions, and the challenges faced in avoiding the planning fallacy. The Second Avenue Subway project in New York City serves as a case study to illustrate the planning fallacy’s impact. Overall, the episode provides valuable lessons for individuals and organizations seeking to improve project completion rates.

Main Takeaways

The Planning Fallacy and Optimism Bias

• The planning fallacy is the tendency to underestimate project completion time, despite knowing that similar projects have taken longer in the past.
• The optimism bias, which drives the planning fallacy, leads individuals to have a positive outlook on the future and often overlook potential challenges and delays.
• Mental simulations and the brain’s preference for positive information contribute to the planning fallacy.
• Overconfidence, coordination neglect, and self-control failures exacerbate the planning fallacy.

Project Management Tools and Distractions

• Asana, a project management tool, was developed to address the challenges of team organization and workflow management.
• Digital communication and information overload have led to decreased productivity and increased distractions.
• Distractions can take up to 23 minutes to recover from fully, hindering project progress.
• Unintended consequences of technology should be acknowledged and designed through rather than ignored.

Reference Class Forecasting and Incentivizing Contractors

• Reference Class Forecasting involves using historical data to adjust project estimates, improving accuracy.
• Tracking performance is crucial for improving organizational performance.
• Infrastructure mega projects often experience cost and schedule overruns.
• Strategic misrepresentation, where planners underestimate costs and overestimate benefits, is a common tactic to secure project funding.
• Incentivizing contractors to work hard can help avoid worsening project delays.

The Second Avenue Subway Project

• The Second Avenue Subway project in New York City serves as an example of the planning fallacy in action.
• The project faced numerous delays and cost overruns, resulting in only two miles of tunnel and three stations being completed instead of the planned eight and a half miles and 15 stations.
• The project’s current cost stands at $4.5 billion, making it one of the most expensive mass transit projects in history.
• Mega projects often start with aggressive schedules and optimistic budgets to showcase progress to constituents, but this can contribute to delays and budget overruns.

Summary

The Planning Fallacy and Optimism Bias

Professor Roger Bueller’s research on social cognition and decision-making highlights the planning fallacy, where individuals consistently underestimate project completion time. The optimism bias, a related phenomenon, drives people to have a positive outlook on the future, often overlooking potential challenges and delays. Mental simulations and the brain’s preference for positive information contribute to this bias. Overconfidence, coordination neglect, and self-control failures further exacerbate the planning fallacy. While the optimism bias serves positive evolutionary purposes, it can lead to negative consequences, such as not taking precautionary action. Providing statistical context and changing the environment can help reduce the optimism bias and improve project management.

Project Management Tools and Distractions

Rosenstein’s creation of Asana addresses the challenges of team organization and workflow management. Digital communication and information overload have resulted in decreased productivity and increased distractions, hindering project progress. Distractions can take up to 23 minutes to fully recover from, significantly impacting work efficiency. It is essential to acknowledge and design through the unintended consequences of technology rather than avoiding them. Effective project management tools, like Asana, can help teams work together more effectively and mitigate the impact of distractions.

Reference Class Forecasting and Incentivizing Contractors

Reference Class Forecasting, which involves using historical data to adjust project estimates, can help improve accuracy and reduce the planning fallacy. Tracking performance is crucial for organizations to identify areas for improvement. Mega projects, such as infrastructure projects, often experience cost and schedule overruns. Planners may strategically misrepresent project estimates to secure funding, leading to unrealistic expectations. Incentivizing contractors to work hard can help avoid worsening project delays.

The Second Avenue Subway Project

The Second Avenue Subway project in New York City exemplifies the planning fallacy. The project faced numerous delays and cost overruns, resulting in only two miles of tunnel and three stations being completed instead of the planned eight and a half miles and 15 stations. The project’s current cost stands at $4.5 billion, making it one of the most expensive mass transit projects in history. Elected officials often initiate mega projects with aggressive schedules and optimistic budgets to showcase progress, but they may not be around to see the project through. The Second Avenue Subway project serves as a cautionary tale for the planning fallacy and the importance of realistic project management.

Conclusion

Understanding the planning fallacy, optimism bias, and other factors that contribute to project delays is crucial for effective project management. By incorporating tools like Asana, practicing reference class forecasting, and incentivizing contractors, organizations can improve project completion rates. However, it is essential to recognize the inherent challenges in avoiding the planning fallacy and to learn from past failed projects like the Second Avenue Subway in New York City. By implementing these strategies and acknowledging the complexities of project management, individuals and organizations can work towards more successful and timely project outcomes.