Optimism bias, Strategic Misinterpretation and Reference Class Forecasting (RCF)
Abstract
Most major projects around the world are facing the problems regarding planning and underestimating the costs of a project in the initial phases. These setbacks can cost an enormous sum of money and cause major setbacks of the planned schedule.
The initial planning and make a reliable budget are some om the main organizational managerial skills for a project manager. [1].
But unfortunately, it is today seen that most projects will not fulfill the initial plans and will not met the initial budget goals. It is logically a utopian idea of predicting the unpredictable (known unknowns) or even the things that is impossible to foreseen. And that is why we, as project managers need tools and learn from the past and others.
The Danish professor Bent Flyvbjerg did research into cost overrun and benefit shortfall of major projects, with additional studies into hypothetical solutions. By sub-dividing the broader aspect of this into the two topics: Optimism Bias and Strategic Misrepresentation Flyvbjerg explored and explained more about the cost and benefit shortfall of major projects. And through further investigation, Flyvbjerg came up with a possible solution: the use of Reference Class Forecasting [2]. The Reference Class Forecasting approach provides a more general overview and “is beneficial for non-routine projects” [3] .
Through reading this article, a clear and succinct explanation of the strategies and ideas mentioned above will be discussed. Furthermore, the idea of Reference Class Forecasting in larger projects will be covered as well as the studies' limitations.
References
- ↑ PMI:Project Management Institute,Project Management: A guide to the Project Management Body of Knowledge (PMBOK guide), 6th Edition 2017 , Table 1-2.
- ↑ Flyvbjerg, Bent, Curbing Optimism Bias and Strategic Misrepresentation in Planning: Reference Class Forecasting in Practice, (European Planning Studies, 2008), 16. 3-21.
- ↑ Flyvbjerg, B., From Nobel Prize to project management: getting risks right, (Paper presented at PMI® Research Conference: New Directions in Project Management, Montréal, Québec, Canada. Newtown Square, PA: Project Management Institute, 2006).
