Optimism is the tendency to see the glass as half full rather than half empty, and it is generally coined as a positive trait.
But in project management – and investments – optimism can lead to unexpected outcomes.
When companies make decisions, they tend to let optimism take over, rather than rationally weighing the gains, losses and probabilities of the project or investment.
The bottom line is that costs are underestimated, and benefits are overestimated.
Time optimism is defined as “optimism about the time needed to complete the project”, and results in what is known as schedule slippage. In English, “schedule drives cost” is a saying that is used to underline the increase in costs induced by such slippages.
The problem with optimism is that by ignoring – or downplaying – the potential for errors and miscalculations, companies tend to invest in projects that are unlikely to meet time and budget constraints, or to produce the expected results.
This over-optimism is linked to cognitive biases – which can be seen as “errors” in the way the mind processes information – and organizational pressures.
Cognitive biases
Among cognitive biases linked to over-optimism, there is the natural tendency to exaggerate our own talent. For example, people tend to attribute positive results to themselves and negative results to external factors, regardless of their true cause.
We also tend to exaggerate the degree of control we have over events, thereby neglecting the role of luck.
To illustrate this, imagine you are running an ice cream parlour. If you state that your ice cream sales soared this year because you have the best flavours and the best service, you are experience both previously mentioned biases. Instead, you could state that your ice cream sales soared this year, probably because of the heat wave, the closure of your main competitor, and the increase in tourism in the area – and maybe the flavours and service played a role as well.
Exaggerating our own abilities and degree of control can lead us to believe that, in a project, we will be able to avoid or easily overcome problems linked to its execution.
This is how things go wrong.
As HBR wrote a few years ago, the scenarios used for planning are usually inadequate. Every complex project is subject to a myriad of problems, that our imagination is unable to perceive from the start.
Therefore, the initial plan tends to underestimate the probability of things going wrong.
In short, we are overly self-confident in our ability to manage events, while underestimating the probability that things will go wrong.
From a financial perspective, managers tend to plan reserve funds to cover project overruns. Yet, their analysis is often distorted by initial optimism: they plan too little, stick to their initial estimates, and minimize the probability of delays, problems, and scope expansion.
So, we tend to be overconfident that things will go well, while reducing our ability to protect ourselves from risk.
It’s a bit like crossing the Atlantic on an air mattress, because you can swim well, and it floats anyway.
Finally, the “groupthink” bias: the tendency of the project stakeholders or a group to align with the general opinion, for the sake of harmony and conformity.
Organizational pressure
Another major problem is the internal competition within organizations: budgets and time to dedicate to new projects are limited. Stakeholders have an interest in suggesting execution plans and forecasts that accentuate the positive aspects, to increase the probability of their project getting the green light.
So, not only are there cognitive biases, but the dynamics of the company will also promote them.
The outsider’s viewpoint
To reduce the risk of a project, the initial plan is therefore fundamental, and this plan must be as realistic as possible.
But to counteract the effects of over-optimism, one solution is to look at similar projects in the company’s past – or in other organizations – and gather data on the budget and time it took to complete them.
Better yet, by using outside experts, you can also reduce the ownership bias.
The outsider’s viewpoint reduces cognitive biases and provides a more realistic picture of budget and time constraints.
This method, known as the outsider’s viewpoint method, is particularly fit for projects in which the company has little to no experience.
Sometimes though, finding precedents is difficult, especially when developing or implementing new technologies. In such cases, you should try to broaden the category of past projects you are looking at. For example, you can include projects that have required the implementation of other new technologies, or projects of third-party companies that have used the technology you are trying to develop, etc.
So, while it is obvious that optimism must be promoted internally to keep employees motivated and focused on the project, the initial decision on whether to invest in a project must be based on an outside view, which is more likely to make realistic predictions, based on past similar projects.
At AquaFin, our project management training courses allow you to learn through simulation how to launch a project the right way, or how to get it back on track when it falters.
The use of a playful solution such as a simulation allows you to better approach the dynamics of projects, while applying your new knowledge directly, in a realistic context. This will make it easier for you to draw on your experience in future projects!
As you can see, to avoid cold sweats in the launch and execution of your projects going forward, don’t hesitate to contact us 😉