Reference class forecasting
Abstract
The definition of project success according to the standard published by the project management institute is meeting customers' expectations without exceeding the desired requirement such as cost, duration, and scope. [1] However, executing projects on time following a planned framework and budget is a challenging aspect of project management. Reference class forecasting is a method that studies the overall view of certain projects by forecasting similar projects rather than focusing solely on the considered project. This method allows a project manager to avoid errors by basing the forecast on similar projects. It also assists to take decisions under uncertainties through assessing the risk of the planned project. [1] In this article, the RCFM method developed by Kahneman and Tversky will be presented. That will be followed with clear guidance on how to use the method. Then its application and limitations.
Big Idea
Optimism bias is a term coined by Daniel Kahnemann means that people tend to see the world in a more positive light. Optimism bias is the foundation of the RCF method, the method states that human judgment is biased, as it tends to be more optimistic than realistic due to overconfidence which leads to underestimating cost, completion times, and risks of planned actions. Furthermore, humans also tend to overestimate the benefits of those same actions.
Research made on a sample of 250 large projects executed over the last 7 decades shows that 90% of these projects exceeded the original budget and duration planes. According to re-searcher, almost all projects do not meet their goals, [2]
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