Biases in Project Management - Revision history

Evarun96 at 23:10, 27 February 2021

2021-02-27T23:10:49Z

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	''By Eva Rún Arnarsdóttir ''		''Developed by Eva Rún Arnarsdóttir ''

	==Abstract==		==Abstract==

Evarun96 at 23:10, 27 February 2021

2021-02-27T23:10:11Z

← Older revision		Revision as of 23:10, 27 February 2021
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			''By Eva Rún Arnarsdóttir ''

	==Abstract==		==Abstract==

Evarun96 at 22:59, 27 February 2021

2021-02-27T22:59:17Z

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	https://app.knovel.com/hotlink/toc/id:kpGPMBKP02/guide-project-management/guide-project-management.</ref> This topic is mainly related to project management but can also be found in program and portfolio management.		https://app.knovel.com/hotlink/toc/id:kpGPMBKP02/guide-project-management/guide-project-management.</ref> This topic is mainly related to project management but can also be found in program and portfolio management.

	Project managers have a tendency to overestimate benefits and underestimate cost i.e., be too optimistic. This is known as ''Optimism Bias'' and is widely accepted as a key reason for overruns in projects, especially in large infrastructure projects. <ref name="leleur"> Leleur, S., Salling, K.B., Pilkauskiene, I. and Nicolaisen, M.S. (2015). Combining Reference Class Forecasting with Overconfidence Theory for Better Risk Assessment of Transport Infrastructure. ''The European Journal of Transport and Infrastructure Research (EJTIR), 15(3)'', 362-375. Retrieved on February 10th 2021 from https://www.researchgate.net/publication/275213953_Combining_Reference_Class_Forecasting_with_Overconfidence_Theory_for_Better_Risk_Assessment_of_Transport_Infrastructure_Investments .</ref>		Project managers have a tendency to overestimate benefits and underestimate cost i.e., be too optimistic. This is known as ''Optimism Bias'' and is widely accepted as a key reason for overruns in projects, especially in large infrastructure projects. <ref name="leleur"> Leleur, S., Salling, K.B., Pilkauskiene, I. and Nicolaisen, M.S. (2015). Combining Reference Class Forecasting with Overconfidence Theory for Better Risk Assessment of Transport Infrastructure. ''The European Journal of Transport and Infrastructure Research (EJTIR), 15(3)'', 362-375. Retrieved on February 10th 2021 from https://www.researchgate.net/publication/275213953_Combining_Reference_Class_Forecasting_with_Overconfidence_Theory_for_Better_Risk_Assessment_of_Transport_Infrastructure_Investments</ref>

	Being aware of these biases is crucial for all project managers in order to be able to offset them. By acknowledging biases and applying appropriate measures, it is possible to counter the effects. These measures include simple solutions such as finding a mutual ground within teams and more complex solutions such as Reference Class Forecasting, which is explained in this article.		Being aware of these biases is crucial for all project managers in order to be able to offset them. By acknowledging biases and applying appropriate measures, it is possible to counter the effects. These measures include simple solutions such as finding a mutual ground within teams and more complex solutions such as Reference Class Forecasting, which is explained in this article.
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	Optimism Bias usually manifests in planning for projects where uncertainty and complexity is high. In such projects the risk management is a vital part of the process. Many methods exists for a risk assessment and to calculate the cost and benefits of a project. Recently studies have proposed that the best way to do a cost estimate and a risk assessment is with the Reference Class Forecasting Method, which will be discussed in this section along with information about Optimism Bias in general.		Optimism Bias usually manifests in planning for projects where uncertainty and complexity is high. In such projects the risk management is a vital part of the process. Many methods exists for a risk assessment and to calculate the cost and benefits of a project. Recently studies have proposed that the best way to do a cost estimate and a risk assessment is with the Reference Class Forecasting Method, which will be discussed in this section along with information about Optimism Bias in general.
	Bent Flyvbjerg of Oxford University has researched Optimism Bias extensively, both causes and possible remedies which include the Reference Class Forecasting. He has published a wide range of articles on the subject which provide the basis for this section. <ref name="Flyvbjerg2002"> Flyvbjerg, B., Holm, M. S. and Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie? ''Journal of the American Planning Association, 68(3),'' 279-295. Retrieved on February 17th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/pdf/10.1080/01944360208976273?needAccess=true </ref> <ref name="Flyvbjerg2014"> Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. ''Project Management Journal, 45(2),'' 6-19. Retrieved on February 12th 2021 from https://journals-sagepub-com.proxy.findit.dtu.dk/doi/abs/10.1002/pmj.21409 </ref> <ref name="Flyvbjerg and Cowi"> Flyvbjerg, B. and Cowi. (2004). Procedures for Dealing with Optimism Bias in Transport Planning: Guidance Document. London: The British Department for Transport. Retrieved on February 17th 2021 from https://poseidon01.ssrn.com/delivery.php?ID=044090101066109125071078086000091088034056090036079024023025127111066004108030084075060056032028047044115026097031014085098116112075028080092082020120103025007110110026011016025027120109086092083028031073004095017068115099071026100010031005070100008084&EXT=pdf&INDEX=TRUE </ref> <ref name="Flyvbjerg2007"> Flyvbjerg, B. (2007). Policy and planning for large-infrastructure projects: problems, causes, cures. '' Environment and Planning B: Planning and Design, 34,'' 578 – 597. Retrieved on February 17th 2021 from https://journals.sagepub.com/doi/pdf/10.1068/b32111 </ref> <ref name="curbing"> Flyvbjerg, B. (2006). Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice. ''European Planning Studies, 16(1),'' 3-21. Retrieved on February 15th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/full/10.1080/09654310701747936 </ref>		Bent Flyvbjerg of Oxford University has researched Optimism Bias extensively, both causes and possible remedies which include the Reference Class Forecasting. He has published a wide range of articles on the subject which provide the basis for this section. <ref name="Flyvbjerg2002"> Flyvbjerg, B., Holm, M. S. and Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie? ''Journal of the American Planning Association, 68(3),'' 279-295. Retrieved on February 17th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/pdf/10.1080/01944360208976273?needAccess=true </ref> <ref name="Flyvbjerg2014"> Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. ''Project Management Journal, 45(2),'' 6-19. Retrieved on February 12th 2021 from https://journals-sagepub-com.proxy.findit.dtu.dk/doi/abs/10.1002/pmj.21409 </ref> <ref name="Flyvbjerg and Cowi"> Flyvbjerg, B. and Cowi. (2004). Procedures for Dealing with Optimism Bias in Transport Planning: Guidance Document. London: The British Department for Transport. Retrieved on February 17th 2021 from https://poseidon01.ssrn.com/delivery.php?ID=044090101066109125071078086000091088034056090036079024023025127111066004108030084075060056032028047044115026097031014085098116112075028080092082020120103025007110110026011016025027120109086092083028031073004095017068115099071026100010031005070100008084&EXT=pdf&INDEX=TRUE </ref> <ref name="Flyvbjerg2007"> Flyvbjerg, B. (2007). Policy and planning for large-infrastructure projects: problems, causes, cures. '' Environment and Planning B: Planning and Design, 34,'' 578 – 597. Retrieved on February 17th 2021 from https://journals.sagepub.com/doi/pdf/10.1068/b32111 </ref> <ref name="curbing"> Flyvbjerg, B. (2006). Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice. ''European Planning Studies, 16(1),'' 3-21. Retrieved on February 15th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/full/10.1080/09654310701747936 </ref>


	[[File:Inaccuracy.PNG\|thumb\|upright=2.0\|alt=Illustration of uplifts\|'''Figure 1: '''Inaccuracy in project estimations. ''Adapted from Flyvbjerg (2006), page 5. '' <ref name="curbing"> </ref> ]]		[[File:Inaccuracy.PNG\|thumb\|upright=2.0\|alt=Illustration of uplifts\|'''Figure 1: '''Inaccuracy in project estimations. ''Adapted from Flyvbjerg (2006), page 5. '' <ref name="curbing"> </ref> ]]

Evarun96 at 22:58, 27 February 2021

2021-02-27T22:58:12Z

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	'''Confirmation Bias''' happens when people look for confirmation or evidence to support what they already belief and ignore information that contradicts it. <ref name="Virine"> Virine, L., Trumper, M. and Virine, E. (2018). Heuristics and Biases in Project Management. ''PM World Journal, 7(1),'' 1-11. Retrieved on February 15th 2021 from https://pmworldlibrary.net/wp-content/uploads/2018/01/pmwj66-Jan2018-Virines-heuristics-and-biases-in-project-management.pdf </ref>		'''Confirmation Bias''' happens when people look for confirmation or evidence to support what they already belief and ignore information that contradicts it. <ref name="Virine"> Virine, L., Trumper, M. and Virine, E. (2018). Heuristics and Biases in Project Management. ''PM World Journal, 7(1),'' 1-11. Retrieved on February 15th 2021 from https://pmworldlibrary.net/wp-content/uploads/2018/01/pmwj66-Jan2018-Virines-heuristics-and-biases-in-project-management.pdf </ref>

	'''Conservatism''' is when team members is will not take into consideration new information or any negative feedback but rather stick to what has always been. <ref name="Shore"> </ref>		'''Conservatism''' is when team members is will not take into consideration new information or any negative feedback but rather stick to what has always been. <ref name="Shore"> Shore, B. (2008). Systematic Biases and Culture in Project Failures. ''Project Management Journal, 39(4),'' 5–16. Retrieved on February 14th 2021 from https://journals.sagepub.com/doi/pdf/10.1002/pmj.20082 </ref>

	'''Groupthink''' occurs then team members think alike, and they do not accept evidence that proves otherwise. <ref name="Shore"> </ref>		'''Groupthink''' occurs then team members think alike, and they do not accept evidence that proves otherwise. <ref name="Shore"> </ref>
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	===Optimism Bias in planning===		===Optimism Bias in planning===
	Optimism Bias usually manifests in planning for projects where uncertainty and complexity is high. In such projects the risk management is a vital part of the process. Many methods exists for a risk assessment and to calculate the cost and benefits of a project. Recently studies have proposed that the best way to do a cost estimate and a risk assessment is with the Reference Class Forecasting Method, which will be discussed in this section along with information about Optimism Bias in general.		Optimism Bias usually manifests in planning for projects where uncertainty and complexity is high. In such projects the risk management is a vital part of the process. Many methods exists for a risk assessment and to calculate the cost and benefits of a project. Recently studies have proposed that the best way to do a cost estimate and a risk assessment is with the Reference Class Forecasting Method, which will be discussed in this section along with information about Optimism Bias in general.
	Bent Flyvbjerg of Oxford University has researched Optimism Bias extensively, both causes and possible remedies which include the Reference Class Forecasting. He has published a wide range of articles on the subject which provide the basis for this section. <ref name="Flyvbjerg2002"> Flyvbjerg, B., Holm, M. S. and Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie? ''Journal of the American Planning Association, 68(3),'' 279-295. Retrieved on February 17th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/pdf/10.1080/01944360208976273?needAccess=true </ref> <ref name="Flyvbjerg2014"> Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. ''Project Management Journal, 45(2),'' 6-19. Retrieved on February 12th 2021 from https://journals-sagepub-com.proxy.findit.dtu.dk/doi/abs/10.1002/pmj.21409 </ref> <ref name="Flyvbjerg and Cowi"> Flyvbjerg, B. and Cowi. (2004). Procedures for Dealing with Optimism Bias in Transport Planning: Guidance Document. London: The British Department for Transport. Retrieved on February 17th 2021 from https://poseidon01.ssrn.com/delivery.php?ID=044090101066109125071078086000091088034056090036079024023025127111066004108030084075060056032028047044115026097031014085098116112075028080092082020120103025007110110026011016025027120109086092083028031073004095017068115099071026100010031005070100008084&EXT=pdf&INDEX=TRUE </ref> <ref name="Flyvbjerg2007"> Flyvbjerg, B. (2007). Policy and planning for large-infrastructure projects: problems, causes, cures. '' Environment and Planning B: Planning and Design, 34,'' 578 – 597. Retrieved on February 17th 2021 from https://journals.sagepub.com/doi/pdf/10.1068/b32111 </ref> <ref name="curbing"> </ref>		Bent Flyvbjerg of Oxford University has researched Optimism Bias extensively, both causes and possible remedies which include the Reference Class Forecasting. He has published a wide range of articles on the subject which provide the basis for this section. <ref name="Flyvbjerg2002"> Flyvbjerg, B., Holm, M. S. and Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie? ''Journal of the American Planning Association, 68(3),'' 279-295. Retrieved on February 17th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/pdf/10.1080/01944360208976273?needAccess=true </ref> <ref name="Flyvbjerg2014"> Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. ''Project Management Journal, 45(2),'' 6-19. Retrieved on February 12th 2021 from https://journals-sagepub-com.proxy.findit.dtu.dk/doi/abs/10.1002/pmj.21409 </ref> <ref name="Flyvbjerg and Cowi"> Flyvbjerg, B. and Cowi. (2004). Procedures for Dealing with Optimism Bias in Transport Planning: Guidance Document. London: The British Department for Transport. Retrieved on February 17th 2021 from https://poseidon01.ssrn.com/delivery.php?ID=044090101066109125071078086000091088034056090036079024023025127111066004108030084075060056032028047044115026097031014085098116112075028080092082020120103025007110110026011016025027120109086092083028031073004095017068115099071026100010031005070100008084&EXT=pdf&INDEX=TRUE </ref> <ref name="Flyvbjerg2007"> Flyvbjerg, B. (2007). Policy and planning for large-infrastructure projects: problems, causes, cures. '' Environment and Planning B: Planning and Design, 34,'' 578 – 597. Retrieved on February 17th 2021 from https://journals.sagepub.com/doi/pdf/10.1068/b32111 </ref> <ref name="curbing"> Flyvbjerg, B. (2006). Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice. ''European Planning Studies, 16(1),'' 3-21. Retrieved on February 15th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/full/10.1080/09654310701747936 </ref>

Evarun96: /* Optimism Bias in planning */

2021-02-27T22:56:28Z

Optimism Bias in planning

← Older revision		Revision as of 22:56, 27 February 2021
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	===Optimism Bias in planning===		===Optimism Bias in planning===
	Optimism Bias usually manifests in planning for projects where uncertainty and complexity is high. In such projects the risk management is a vital part of the process. Many methods exists for a risk assessment and to calculate the cost and benefits of a project. Recently studies have proposed that the best way to do a cost estimate and a risk assessment is with the Reference Class Forecasting Method, which will be discussed in this section along with information about Optimism Bias in general.		Optimism Bias usually manifests in planning for projects where uncertainty and complexity is high. In such projects the risk management is a vital part of the process. Many methods exists for a risk assessment and to calculate the cost and benefits of a project. Recently studies have proposed that the best way to do a cost estimate and a risk assessment is with the Reference Class Forecasting Method, which will be discussed in this section along with information about Optimism Bias in general.
	Bent Flyvbjerg of Oxford University has researched Optimism Bias extensively, both causes and possible remedies which include the Reference Class Forecasting. He has published a wide range of articles on the subject which provide the basis for this section. <ref name="Flyvbjerg2002"></ref> <ref name="~~curbing~~"> </ref> <ref name="Flyvbjerg and Cowi"> </ref> <ref name="~~Flyvbjerg2014~~"> </ref> <ref name="~~Flyvbjerg2007~~"></ref>		Bent Flyvbjerg of Oxford University has researched Optimism Bias extensively, both causes and possible remedies which include the Reference Class Forecasting. He has published a wide range of articles on the subject which provide the basis for this section. <ref name="Flyvbjerg2002"> Flyvbjerg, B., Holm, M. S. and Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie? ''Journal of the American Planning Association, 68(3),'' 279-295. Retrieved on February 17th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/pdf/10.1080/01944360208976273?needAccess=true </ref> <ref name="Flyvbjerg2014"> Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. ''Project Management Journal, 45(2),'' 6-19. Retrieved on February 12th 2021 from https://journals-sagepub-com.proxy.findit.dtu.dk/doi/abs/10.1002/pmj.21409 </ref> <ref name="Flyvbjerg and Cowi"> Flyvbjerg, B. and Cowi. (2004). Procedures for Dealing with Optimism Bias in Transport Planning: Guidance Document. London: The British Department for Transport. Retrieved on February 17th 2021 from https://poseidon01.ssrn.com/delivery.php?ID=044090101066109125071078086000091088034056090036079024023025127111066004108030084075060056032028047044115026097031014085098116112075028080092082020120103025007110110026011016025027120109086092083028031073004095017068115099071026100010031005070100008084&EXT=pdf&INDEX=TRUE </ref> <ref name="Flyvbjerg2007"> Flyvbjerg, B. (2007). Policy and planning for large-infrastructure projects: problems, causes, cures. '' Environment and Planning B: Planning and Design, 34,'' 578 – 597. Retrieved on February 17th 2021 from https://journals.sagepub.com/doi/pdf/10.1068/b32111 </ref> <ref name="curbing"> </ref>


	[[File:Inaccuracy.PNG\|thumb\|upright=2.0\|alt=Illustration of uplifts\|'''Figure 1: '''Inaccuracy in project estimations. ''Adapted from Flyvbjerg (2006), page 5. '' <ref name="curbing"> </ref> ]]		[[File:Inaccuracy.PNG\|thumb\|upright=2.0\|alt=Illustration of uplifts\|'''Figure 1: '''Inaccuracy in project estimations. ''Adapted from Flyvbjerg (2006), page 5. '' <ref name="curbing"> </ref> ]]

	Flyvbjerg et. al. (2002) examined the inaccuracy of transport project estimates and found that costs were underestimated in almost 9 out of 10 projects. Actual costs were 28% higher on average than the estimations and this seemed to be a global phenomenon. They noticed that the cost overrun was different depending on the type of transport project. They examined 258 projects, split into Rail, Road and Fixed Links (Bridges and Tunnels). Rail projects had average cost escalation of 44.7%, the fixed link projects had average cost escalation of 33.8% and road projects had the lowest average of 20.4%. Cost underestimation had not decreased in 70 years when Flyvbjerg and colleges wrote this paper. It would be interesting to see newer numbers concerning Optimism Bias and to see if recent methods such as Reference Class Forecasting could be diminishing the project overruns. Flyvbjerg based the Reference Class Forecasting method on the classification of projects from this paper. <ref name="Flyvbjerg2002"> Flyvbjerg, B., Holm, M. S. and Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie? ''Journal of the American Planning Association, 68(3),'' 279-295. Retrieved on February 17th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/pdf/10.1080/01944360208976273?needAccess=true </ref>		Flyvbjerg et. al. (2002) examined the inaccuracy of transport project estimates and found that costs were underestimated in almost 9 out of 10 projects. Actual costs were 28% higher on average than the estimations and this seemed to be a global phenomenon. They noticed that the cost overrun was different depending on the type of transport project. They examined 258 projects, split into Rail, Road and Fixed Links (Bridges and Tunnels). Rail projects had average cost escalation of 44.7%, the fixed link projects had average cost escalation of 33.8% and road projects had the lowest average of 20.4%. Cost underestimation had not decreased in 70 years when Flyvbjerg and colleges wrote this paper. It would be interesting to see newer numbers concerning Optimism Bias and to see if recent methods such as Reference Class Forecasting could be diminishing the project overruns. Flyvbjerg based the Reference Class Forecasting method on the classification of projects from this paper. <ref name="Flyvbjerg2002"> Flyvbjerg, B., Holm, M. S. and Buhl, S. (2002). Underestimating Costs in Public Works Projects: Error or Lie? ''Journal of the American Planning Association, 68(3),'' 279-295. Retrieved on February 17th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/pdf/10.1080/01944360208976273?needAccess=true </ref>

	Flyvbjerg wrote a paper about megaprojects in 2014 where he lists many past projects with cost overruns and how large the overrun was. Five of these projects have a cost overrun of over 1000%. The highest overrun is the Suez Canal with a cost overrun of 1900%. These numbers are unacceptable since the methods and technology to predict these numbers is available. Project managers must put more emphasis on cost and benefit estimations.<ref name="Flyvbjerg2014"> Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. ''Project Management Journal, 45(2),'' 6-19. Retrieved on February 12th 2021 from https://journals-sagepub-com.proxy.findit.dtu.dk/doi/abs/10.1002/pmj.21409 </ref>		Flyvbjerg wrote a paper about megaprojects in 2014 where he lists many past projects with cost overruns and how large the overrun was. Five of these projects have a cost overrun of over 1000%. The highest overrun is the Suez Canal with a cost overrun of 1900%. These numbers are unacceptable since the methods and technology to predict these numbers is available. Project managers must put more emphasis on cost and benefit estimations.<ref name="Flyvbjerg2014"> Flyvbjerg, B. (2014). What You Should Know About Megaprojects and Why: An Overview. ''Project Management Journal, 45(2),'' 6-19. Retrieved on February 12th 2021 from https://journals-sagepub-com.proxy.findit.dtu.dk/doi/abs/10.1002/pmj.21409 </ref>

Evarun96: /* Reference Class Forecasting */

2021-02-27T22:45:58Z

Reference Class Forecasting

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	Batselier and Vanhoucke performed an experiment in 2016 to test what is indeed the best forecasting method. The project in question was a real-life construction project regarding the finishing touches on the interior of an office building. They did estimates with Earned Value Management, Baseline estimates, Monte Carlo simulation and RCF. The project was then executed, and the estimates compared to the actual cost of the project. Their findings show that RCF did deliver the best estimate out of all methods and they describe RCF as the most user-friendly method because it does not require a lot of detailed information. <ref name="Batselier"> Batselier, J. and Vanhoucke, M. (2016). Practical Application and Empirical Evaluation of Reference Class Forecasting for Project Management. ''Project Management Journal, 47(5),'' 36–51. Retrieved on February 18th 2021 from https://journals.sagepub.com/doi/pdf/10.1177/875697281604700504 </ref>		Batselier and Vanhoucke performed an experiment in 2016 to test what is indeed the best forecasting method. The project in question was a real-life construction project regarding the finishing touches on the interior of an office building. They did estimates with Earned Value Management, Baseline estimates, Monte Carlo simulation and RCF. The project was then executed, and the estimates compared to the actual cost of the project. Their findings show that RCF did deliver the best estimate out of all methods and they describe RCF as the most user-friendly method because it does not require a lot of detailed information. <ref name="Batselier"> Batselier, J. and Vanhoucke, M. (2016). Practical Application and Empirical Evaluation of Reference Class Forecasting for Project Management. ''Project Management Journal, 47(5),'' 36–51. Retrieved on February 18th 2021 from https://journals.sagepub.com/doi/pdf/10.1177/875697281604700504 </ref>

	However, Tim Neerup Themsen (2019) suggests that the Reference Class Forecasting method is not as good as people belief. He bases his research on a Danish Megaproject, Signalling Programme, that did not deliver the promised results despite ~~Reference Class Forecasting~~ being used for estimating. The project had cost overruns, was delayed and had to reduce the scope. Themsen believes that the estimation experts showed signs of biases and that RCF does not prevent optimism bias. No outside stakeholders questioned the application of RFC because they were made to believe it was superior to all other methods. Themsen poses the question of how many projects have to fail in order for people to start questioning RCF. He does not propose that people stop using RCF, but to focus on the conditions that the estimations were made under and to have an impartial reviewer. It must be noted that it was the first big Danish public project to use the RCF method so perhaps it was not carried out correctly and future projects could be executed better. <ref name="themsen">		However, Tim Neerup Themsen (2019) suggests that the Reference Class Forecasting method is not as good as people belief. He bases his research on a Danish Megaproject, Signalling Programme, that did not deliver the promised results despite RCF being used for estimating. The project had cost overruns, was delayed and had to reduce the scope. Themsen believes that the estimation experts showed signs of biases and that RCF does not prevent optimism bias. No outside stakeholders questioned the application of RFC because they were made to believe it was superior to all other methods. Themsen poses the question of how many projects have to fail in order for people to start questioning RCF. He does not propose that people stop using RCF, but to focus on the conditions that the estimations were made under and to have an impartial reviewer. It must be noted that it was the first big Danish public project to use the RCF method so perhaps it was not carried out correctly and future projects could be executed better. <ref name="themsen">
	Themsen, T. N. (2019). The processes of public megaproject cost estimation: The inaccuracy of reference class forecasting. ''Financial Accountability and Management, 35(4),'' 337-352. Retrieved on February 17th 2021 from https://onlinelibrary.wiley.com/doi/full/10.1111/faam.12210?casa_token=CL_6AsSd0xMAAAAA%3AcAI44_N_LdQKMR_GSb0xH7OFo_-JLzl1KbevboJSGMqBpBFwZdQ_2PagUKMTxZD2Ksitur9dI9oSFCs </ref>		Themsen, T. N. (2019). The processes of public megaproject cost estimation: The inaccuracy of reference class forecasting. ''Financial Accountability and Management, 35(4),'' 337-352. Retrieved on February 17th 2021 from https://onlinelibrary.wiley.com/doi/full/10.1111/faam.12210?casa_token=CL_6AsSd0xMAAAAA%3AcAI44_N_LdQKMR_GSb0xH7OFo_-JLzl1KbevboJSGMqBpBFwZdQ_2PagUKMTxZD2Ksitur9dI9oSFCs </ref>

Evarun96: /* Reference Class Forecasting */

2021-02-27T22:44:10Z

Reference Class Forecasting

← Older revision		Revision as of 22:44, 27 February 2021
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	====Reference Class Forecasting====		====Reference Class Forecasting====

	Reference Class Forecasting (RFC) is a method to improve the reliability of project cost estimates. It originated with the aforementioned psychologists Tversky and Kahneman whom felt this method could compensate for the cognitive bias of decision makers. Kahneman developed the theoretical framework which earned him a Nobel Prize in economics. Reference Class Forecasting focuses on including historical data as a reference point and therefore taking an “outside view”. Instead of only looking at the specific problem at hand, similar projects are analyzed and information from them transferred to the current problem. The data collected is on how well the projects delivered the planned benefits and if they were on time and on budget, if not than by how much. By doing this it is possible to learn from past mistakes and the estimates become more realistic and accurate. Though the theories were originally introduced by Kahneman he did not develop the practical use of the method. Bent Flyvbjerg, a Danish economist and professor at Oxford University, in association with COWI, developed the practical method for use in planning projects. [[File:Uplifts.PNG\|thumb\|upright=3.0\|alt=Illustration of uplifts\|'''Figure 2: '''Required uplifts for each class when using the RCF method. ''Adapted from Flyvbjerg and COWI (2004), page 32. '' <ref name="Flyvbjerg and Cowi"> </ref> ]]		Reference Class Forecasting (RFC) is a method to improve the reliability of project cost estimates. It originated with the aforementioned psychologists Tversky and Kahneman whom felt this method could compensate for the cognitive bias of decision makers. Kahneman developed the theoretical framework which earned him a Nobel Prize in economics. Reference Class Forecasting focuses on including historical data as a reference point and therefore taking an “outside view”. Instead of only looking at the specific problem at hand, similar projects are analyzed and information from them transferred to the current problem. The data collected is on how well the projects delivered the planned benefits and if they were on time and on budget, if not than by how much. By doing this it is possible to learn from past mistakes and the estimates become more realistic and accurate. Though the theories were originally introduced by Kahneman he did not develop the practical use of the method. Bent Flyvbjerg, a Danish economist and professor at Oxford University, in association with COWI, developed the practical method for use in planning projects. [[File:Uplifts.PNG\|thumb\|upright=3.0\|alt=Illustration of uplifts\|'''Figure 2: '''Required uplifts for each class when using the RCF method. ''Adapted from Flyvbjerg and COWI (2004), page 32. '' <ref name="Flyvbjerg and Cowi"> </ref> ]] American Planning Association (APA) recommended the use of Reference Class Forecasting for project planning in 2005 and since then it has grown in popularity. <ref name="curbing"> </ref>
	American Planning Association (APA) recommended the use of Reference Class Forecasting for project planning in 2005 and since then it has grown in popularity. <ref name="curbing"> </ref>

	The Reference Class Forecasting method has three steps. First a relevant reference class needs to be found. Secondly, a probability distribution needs to be selected for the reference class which means finding data for other projects in the same reference class and using it to make an assertion about the projects in this class. Finally, the projects have to be compared to the distribution from the reference class and adjusted. <ref name="curbing"> </ref>		The Reference Class Forecasting method has three steps. First a relevant reference class needs to be found. Secondly, a probability distribution needs to be selected for the reference class which means finding data for other projects in the same reference class and using it to make an assertion about the projects in this class. Finally, the projects have to be compared to the distribution from the reference class and adjusted. <ref name="curbing"> </ref>

Evarun96: /* Reference Class Forecasting */

2021-02-27T22:43:32Z

Reference Class Forecasting

← Older revision		Revision as of 22:43, 27 February 2021
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	====Reference Class Forecasting====		====Reference Class Forecasting====

	Reference Class Forecasting (RFC) is a method to improve the reliability of project cost estimates. It originated with the aforementioned psychologists Tversky and Kahneman whom felt this method could compensate for the cognitive bias of decision makers. Kahneman developed the theoretical framework which earned him a Nobel Prize in economics. Reference Class Forecasting focuses on including historical data as a reference point and therefore taking an “outside view”. Instead of only looking at the specific problem at hand, similar projects are analyzed and information from them transferred to the current problem. The data collected is on how well the projects delivered the planned benefits and if they were on time and on budget, if not than by how much. By doing this it is possible to learn from past mistakes and the estimates become more realistic and accurate. Though the theories were originally introduced by Kahneman he did not develop the practical use of the method. Bent Flyvbjerg, a Danish economist and professor at Oxford University, in association with COWI, developed the practical method for use in planning projects. ~~<ref name="curbing"> </ref>~~ [[File:Uplifts.PNG\|thumb\|upright=3.0\|alt=Illustration of uplifts\|'''Figure 2: '''Required uplifts for each class when using the RCF method. ''Adapted from Flyvbjerg and COWI (2004), page 32. '' <ref name="Flyvbjerg and Cowi"> </ref> ]]		Reference Class Forecasting (RFC) is a method to improve the reliability of project cost estimates. It originated with the aforementioned psychologists Tversky and Kahneman whom felt this method could compensate for the cognitive bias of decision makers. Kahneman developed the theoretical framework which earned him a Nobel Prize in economics. Reference Class Forecasting focuses on including historical data as a reference point and therefore taking an “outside view”. Instead of only looking at the specific problem at hand, similar projects are analyzed and information from them transferred to the current problem. The data collected is on how well the projects delivered the planned benefits and if they were on time and on budget, if not than by how much. By doing this it is possible to learn from past mistakes and the estimates become more realistic and accurate. Though the theories were originally introduced by Kahneman he did not develop the practical use of the method. Bent Flyvbjerg, a Danish economist and professor at Oxford University, in association with COWI, developed the practical method for use in planning projects. [[File:Uplifts.PNG\|thumb\|upright=3.0\|alt=Illustration of uplifts\|'''Figure 2: '''Required uplifts for each class when using the RCF method. ''Adapted from Flyvbjerg and COWI (2004), page 32. '' <ref name="Flyvbjerg and Cowi"> </ref> ]]
	American Planning Association (APA) recommended the use of Reference Class Forecasting for project planning in 2005 and since then it has grown in popularity.		American Planning Association (APA) recommended the use of Reference Class Forecasting for project planning in 2005 and since then it has grown in popularity. <ref name="curbing"> </ref>

	The Reference Class Forecasting method has three steps. First a relevant reference class needs to be found. Secondly, a probability distribution needs to be selected for the reference class which means finding data for other projects in the same reference class and using it to make an assertion about the projects in this class. Finally, the projects have to be compared to the distribution from the reference class and adjusted. <ref name="curbing"> </ref>		The Reference Class Forecasting method has three steps. First a relevant reference class needs to be found. Secondly, a probability distribution needs to be selected for the reference class which means finding data for other projects in the same reference class and using it to make an assertion about the projects in this class. Finally, the projects have to be compared to the distribution from the reference class and adjusted. <ref name="curbing"> </ref>

Evarun96: /* Reference Class Forecasting */

2021-02-27T22:43:10Z

Reference Class Forecasting

← Older revision		Revision as of 22:43, 27 February 2021
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	By examining former projects and their cost overruns, a probability distribution was created for each class.		By examining former projects and their cost overruns, a probability distribution was created for each class.
	Each class has a required uplift that is needed in step 3 to adjust the new project to the distribution. Managers and project owners need to establish what the accepted risk of overrun and find the appropriate uplift. As the risk gets lower the uplift gets higher. That is if the project owners are willing to accept a 30% chance of a overrun for a railway project the uplift would be 51%, however of the allowable risk is only 10% the uplift required according to RCF is 68%. The required uplift for each class and different risks is shown in Figure 1.		Each class has a required uplift that is needed in step 3 to adjust the new project to the distribution. Managers and project owners need to establish what the accepted risk of overrun and find the appropriate uplift. As the risk gets lower the uplift gets higher. That is if the project owners are willing to accept a 30% chance of a overrun for a railway project the uplift would be 51%, however of the allowable risk is only 10% the uplift required according to RCF is 68%. The required uplift for each class and different risks is shown in Figure 2. <ref name="Flyvbjerg and Cowi"> </ref>

	=====Studies on the effectiveness of RCF=====		=====Studies on the effectiveness of RCF=====

Evarun96: /* Reference Class Forecasting */

2021-02-27T22:42:32Z

Reference Class Forecasting

← Older revision		Revision as of 22:42, 27 February 2021
Line 98:		Line 98:
	====Reference Class Forecasting====		====Reference Class Forecasting====

	Reference Class Forecasting (RFC) is a method to improve the reliability of project cost estimates. It originated with the aforementioned psychologists Tversky and Kahneman whom felt this method could compensate for the cognitive bias of decision makers. Kahneman developed the theoretical framework which earned him a Nobel Prize in economics. Reference Class Forecasting focuses on including historical data as a reference point and therefore taking an “outside view”. Instead of only looking at the specific problem at hand, similar projects are analyzed and information from them transferred to the current problem. The data collected is on how well the projects delivered the planned benefits and if they were on time and on budget, if not than by how much. By doing this it is possible to learn from past mistakes and the estimates become more realistic and accurate. Though the theories were originally introduced by Kahneman he did not develop the practical use of the method. Bent Flyvbjerg, a Danish economist and professor at Oxford University, in association with COWI, developed the practical method for use in planning projects. [[File:Uplifts.PNG\|thumb\|upright=3.0\|alt=Illustration of uplifts\|'''Figure 2: '''Required uplifts for each class when using the RCF method. ''Adapted from Flyvbjerg and COWI (2004), page 32. '' <ref name="Flyvbjerg and Cowi"> </ref> ]]		Reference Class Forecasting (RFC) is a method to improve the reliability of project cost estimates. It originated with the aforementioned psychologists Tversky and Kahneman whom felt this method could compensate for the cognitive bias of decision makers. Kahneman developed the theoretical framework which earned him a Nobel Prize in economics. Reference Class Forecasting focuses on including historical data as a reference point and therefore taking an “outside view”. Instead of only looking at the specific problem at hand, similar projects are analyzed and information from them transferred to the current problem. The data collected is on how well the projects delivered the planned benefits and if they were on time and on budget, if not than by how much. By doing this it is possible to learn from past mistakes and the estimates become more realistic and accurate. Though the theories were originally introduced by Kahneman he did not develop the practical use of the method. Bent Flyvbjerg, a Danish economist and professor at Oxford University, in association with COWI, developed the practical method for use in planning projects. <ref name="curbing"> </ref> [[File:Uplifts.PNG\|thumb\|upright=3.0\|alt=Illustration of uplifts\|'''Figure 2: '''Required uplifts for each class when using the RCF method. ''Adapted from Flyvbjerg and COWI (2004), page 32. '' <ref name="Flyvbjerg and Cowi"> </ref> ]]
	American Planning Association (APA) recommended the use of Reference Class Forecasting for project planning in 2005 and since then it has grown in popularity.		American Planning Association (APA) recommended the use of Reference Class Forecasting for project planning in 2005 and since then it has grown in popularity.

	The Reference Class Forecasting method has three steps. First a relevant reference class needs to be found. Secondly, a probability distribution needs to be selected for the reference class which means finding data for other projects in the same reference class and using it to make an assertion about the projects in this class. Finally, the projects have to be compared to the distribution from the reference class and adjusted.		The Reference Class Forecasting method has three steps. First a relevant reference class needs to be found. Secondly, a probability distribution needs to be selected for the reference class which means finding data for other projects in the same reference class and using it to make an assertion about the projects in this class. Finally, the projects have to be compared to the distribution from the reference class and adjusted. <ref name="curbing"> </ref>

	Flyvbjerg examined 260 infrastructure projects and put in a database. He documented similarities between projects and classified into reference classes. The three main groups were, Roads, Rail and Fixed Links, which includes bridges and tunnels. <ref name="curbing"> Flyvbjerg, B. (2006). Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice. ''European Planning Studies, 16(1),'' 3-21. Retrieved on February 15th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/full/10.1080/09654310701747936 </ref>		Flyvbjerg examined 260 infrastructure projects and put in a database. He documented similarities between projects and classified into reference classes. The three main groups were, Roads, Rail and Fixed Links, which includes bridges and tunnels. <ref name="curbing"> Flyvbjerg, B. (2006). Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice. ''European Planning Studies, 16(1),'' 3-21. Retrieved on February 15th 2021 from https://www-tandfonline-com.proxy.findit.dtu.dk/doi/full/10.1080/09654310701747936 </ref>