Revision as of 18:42, 30 April 2023

new title?: Understanding, identifying and handling optimism bias or : The Impact of Optimism Bias on Project Success: Unraveling the Challenges and Solutions or : Optimism Bias in Project Management: Understanding its Impact on Success and Strategies for Mitigation

The idea of this paper is to describe how project management in a cognitive manner, and help understanding biases and help PMs to be able to react in regard to the different behavioural patterns and tendencies that can occurs in teams due to cognative bias, espessaly in regard to optimises bias.

In this paper we will discover that optimism bias is important to tackle as it can lead individuals and/or teams to unrealistic expectations, which can have a negative impact on team dynamics and coordination. Optimistic bias can also have positive effects, such as increasing morale and motivation. As people doesn't come with instructions the idea of this paper is to look at project management in a cognitive manner, regarding different behavioural patterns and tendencies, with a focus on optimism biases, as well as other biases which has a tendency to lead to optimism biases. Optimism biases are examined in regard to teams, and are usually found in smaller teams.

As well as discuss several methods that Project managers can use to effectively manage optimistic bias in teams. Effective team management enables project managers to harness the strengths and talents of individuals, foster trust, and collaboration, and create an environment where everyone is motivated to work towards a shared goal. By understanding and addressing optimism bias, while valuing employees and promoting a supportive and trusting environment, project managers can enhance team performance, productivity, and ultimately, the success of the project, without being overly optimistic.

These methods include 1) fostering a culture of transparency and open communication, 2) using data to help uncover overly optimistic assumptions and goals, 3) encouraging a culture of continuously improving, 4) developing a risk management plan, and 5) seeking external opinions to help setting realistic expectations. By using these methods, project managers can help ensure that their team takes realistic approaches to the project and remains focused on achievable goals. Furthermore, it is important to know the difference between optimistic bias and strategic misinterpretation.

Perspectives on Bias and Project Performance

The behavioral revolution in project management has met with skepticism from some members of the project management community who prefer conventional explanations for unsatisfactory project performance. Behavioral science considers changes in scope, complexity and other factors as relevant to project performance, but not as root causes. The root cause is the underestimation of these factors by project planners and managers, which is driven by biases such as optimism, overconfidence, planning errors and strategic misinterpretation. Scope changes are often confused with the cause of the results (e.g. cost overruns) because they are more visible, but they are in fact intermediate manifestations of the underlying root causes. Behavioral science emphasizes that human biases are the biggest risk in project planning and management, and neglecting this insight can lead to problems with project deliverables. While behavioral science is imperfect and faces challenges in areas such as conceptual clarification and biases overlapping, it has brought about a shift in perspective in project management, highlighting that the problem lies in biases rather than errors. The problem is not cost overruns or lack of benefits per se, but underestimation of costs and overestimation of benefits. Cost overruns are mainly the result of an a priori underestimation that occurs upstream from the actual overrun, sometimes years before it occurs. Understanding these insights highlights the importance of incorporating behavioral science and awareness of bias into project management to improve project performance. ^[1]

General biases

To help project managers (PM) it can be helpful to understand their teams' behaviours and to be more aware of these "soft skills" to identify and treat these tendencies. ^[2] When looking at optimism in teams it is important to look at human behaviours, both from the individuals' side as well as the organisations' mentalities. The following will establish base knowledge about these behaviours. In general biases and optimism is different ways that people are manipulated/influenced, by themselves or others. Optimism biase is referenced as a cognitive bias and entails that the individual doesn't reflect reality, which unbeknownst to them. Meanwhile, on the other hand, there is strategic misrepresentation, which is a tool used for the users' benefit. ^[1]

Cognative bias and Strategic misrepresentation

Cognitive bias is as a broad term, which entails different kinds of biases. Cognitive bias isn't when someone else is trying to manipulate an individual for their own gain, but when the individual themselves contaminates their rationality, hindering them from making rational choices. This doesn't mean that it leads to unpredictable behaviours, but quite the contrary.

"Cognitive bias refers to a systematic (that is, non-random and, thus, predictable) deviation from rationality in judgment or decision-making." ^[3]

There are some different suspected causes, with can lead to Cognitive biases, 1) one could be that we as humans have limited cognitive resources and is therefore in need to sort out information because of our limited capabilities, 2) emotion and motivation also play a huge role when in need to make decisions, 3) social influence, can also influence our decision making as opinions of others can affect decision making & 4) mental shortcuts, as taking everything into account isn’t always possible it can lead to taking what seems to be the best option. ^[3]

In the list below the different biases and Strategic misrepresentation, which is a biases but not a cognative bias. The listed biases are the most likely to effect project planners and influence the project outcomes, if not dealt with during the project.

• Strategic misrepresentation

Strategic misrepresentation is when someone deliberately presents false information for their own benefit and strategic purposes. This mostly relates to the funding or acceptance of projects, where projects are presented to have lower costs and/or higher benefits than what is actually forecast, to look more appealing on paper. There are a lot of different reasons for the tendencies to make use of such a method and is dignified with the mindset of ‘ends justify the means. Here firms use strategic misrepresentation to get a job/project which can lead to profits. Strategic misrepresentation is seen frequently and at higher altitudes where political organizations are involved, as they have a tendency to participate in big and expensive projects. Where there is a lot of pressure from political organizations, as they tend to put more pressure and attention on the projects. As it is important for political organizations to have their project accepted, as it can have an impact on political purposes. ^[1]

Tendencies for strategic misrepresentation

1. Large projects with a lot of attention, and a high strategic importance usually have a large misrepresentation or bias, e.g. political bias, where there is to an extent a cognitive bias.

2. For Smaller projects, with low attention and/or strategic implications, the biases are more likely to be cognitive biases, e.g. optimism bias.

• Optimism bias

• Uniqueness bias

Uniqueness bias in project management is when individuels in the project sees the project or management of the project to be more unique than what is actually is. Instead of looking broth project managers sees their projects as being singular and unique. This uniqueness bias comprehends learning form other projects as project managers sees their own projects as being unique and is therefore different form other projects. Managers who sees their projects as special and unique has a tendency to do worse than project managers who doesn't see their projects as unique. Projects with new technologies has a tendency to increase the illusion of uniqueness in projects, as there is still opportunity draw parallels form other projects. Uniqueness bias can lead to being narrow-minded and optimism, which can leave the project team with wrong estimates of risks, and therefore they might end up taking risky choices. Looking at individuals, individuals can also have a tendency to see themselfs as unique, especially good looking, healthy, smart etc. ^[1]

• The Planning Fallacy (Writ Large)

When optimistic teams, are planning they have a tendency to plan extremely close to the timeline being optimal, not taking many repercussions and estimating their proces to be close to best-chase scenarios and not making room for failures or delay. ^[1]

• Base rate bias / base rate neglect

Is a tendency to not look at ones data objectively. As well as putting more emphasis on one's knowledge without looking objectively at new or different knowledge, as well as thinking that one's knowledge is more important than it actually is. Base rate neglect is identified as a primary reason of why projects underperform. ^[1]

• Anchoring

Anchoring bias is when people tends to anchor on a certain piece of information. This type of bias can have significant effects on decision-making processes within teams, as individuals may focus too heavily on a specific piece of information without considering other relevant factors. This can lead to poor decision-making and suboptimal outcomes for the team. Additionally, the lack of transparency within teams can contribute to anchoring bias, as individuals may not have access to all the relevant information needed to make informed decisions. Therefore, it's important for project managers to promote transparency and open communication within teams to mitigate the effects of anchoring bias. ^[1]

• Overconfidence bias

Overconfidence bias refers to the inclination to possess an unwarranted level of confidence in one's own responses or answers to questions. It involves an exaggerated belief in the accuracy or correctness of one's judgments or abilities. ^[1]

• Hindsight bias

Hindsight bias, also known as the I-knew-it-all-along effect, refers to the tendency to perceive past events as more predictable than they actually were at the time they occurred. This bias leads individuals to believe that they knew or should have known the outcome of an event, even when objective evidence or information available at the time did not support such foresight. ^[1]

• Availability bias

The availability bias refers to the cognitive tendency to overestimate the likelihood of events based on their ease of retrieval or availability in memory. When events or examples are more easily recalled, they can create a perception of higher probability or significance, regardless of their actual frequency or validity. This bias can lead individuals to make judgments and decisions that are influenced by the accessibility of certain information in their minds, potentially leading to inaccurate assessments. ^[1]

• Escalation of commitment

Escalation of commitment, also known as the sunk cost fallacy, refers to the inclination to persistently invest more resources or effort into a decision or course of action, even when new evidence indicates that it may be incorrect or unfavorable. This bias arises from the psychological attachment to prior investments made, leading individuals to justify further commitment based on the cumulative resources already devoted, rather than objectively evaluating the current situation. Despite the presence of contrary evidence, the sunk cost fallacy can influence decision-makers to continue down an unproductive or unwise path due to a reluctance to abandon previous investments. ^[1]

Social influence

Biases can also be formed or modified by social influence, ^[4] confronting this tendency of people to be more influenced by others' earlier expressions and opinions. Therefore it could be important to have a transparent mindset. As well there being observed that people's biases tend to fade or have less effect on behaviours when overlooked by their peers. ^[5] As concluded by Blanco, Fernando. (2017).^[3]

Managing teams

As mentioned, managing and handling teams effectively is of utmost importance when leading a project. Understanding the concept of optimism bias equips project managers with the knowledge to effectively navigate and mitigate its impact on team dynamics. By recognizing the tendency for individuals to be overly optimistic, managers can guide their teams towards a more realistic approach. This enables the setting of achievable goals, better decision-making, and proactive risk management.

A team is defined as; “A teams puts their efforts towards reaching a common goal.” ^[6]

Team management plays a vital role in project leadership as it ensures coordination, collaboration, and the efficient execution of tasks. Effective team management fosters a cohesive working environment, encourages open communication, and maximizes overall productivity. By establishing clear roles and responsibilities, providing necessary support, and addressing any conflicts or challenges that arise, managers create an environment where teams can thrive and perform at their best. This is important as well as being able to build trust among team members and establishing trust in the project leader is crucial for effective team management. Trust enhances collaboration, encourages open dialogue, and creates a supportive atmosphere where individuals feel comfortable expressing their opinions and contributing their expertise. This fosters a sense of psychological safety within the team, leading to improved communication, innovation, and a higher likelihood of achieving project goals. which is why leaders need both technical skills and non-technical skills. ^[7]

There are different types of teams, depending on which teams and what kind of leader you are, also needs to be taken into consideration. ^[7] Here you might need to look into different management and leadership styles. Which refers to the specific approach that managers adopt to achieve their objectives, encompassing decision-making processes, work planning and organization, and the exercise of authority ^[8]. These styles can vary across companies, levels of management, and individuals. A skilled manager has the ability to adapt their management style to different environments and employees. Various factors, such as internal and external business environments, as well as personal perspectives on the role of work in employees' lives, contribute to shaping an individual's management style ^[9]. For more information about this topic about management and different leadership styles you can read the wiki-article; http://wiki.doing-projects.org/index.php/The_Difference_Between_Leadership_and_Management.

Matching leadership styles with the team, you can read more about situational leaders ship, which goes into depth about why PM needs to be flexible to be able to keep up with the continuous change in their teams. http://wiki.doing-projects.org/index.php/Situational_leadership_-_Hersey_and_Blanchard.

Lobby formation, (mention Belbin)

The Role of Optimism Bias in Project Planning and Risk Assessment

It is rare for forecasters to mention optimism bias to be stated as the cause of project delays, going over budget, change of scope etc. Here it is more terms like strategic misrepresentation, scope changes, weather conditions, fluctuating prices etc. which are mentioned. Meanwhile from a psychological point of view, it might be a different story. Optimism bias can be a double-edged sword (both good and bad), as it can be a driver for projects and can breed a positive and active attitude. ^[1] See also the Planning Fallacy (Writ Large) bias mentioned in earlier.

When project leaders develop or review their project plan, they need to look at risk and know where these risks can occur. One of these areas of risk is staffing, as project managers usually overestimate and can be too optimistic about their staff's capabilities which can lead to understaffing in regard to their project. It is also important to understand the skill level and role each team member has, as well as to establish a chain of communication. Where in smaller teams, all may report to the project leader, but in larger teams or projects that might not be the case. As well as to make an estimate of progress, and react to problems regarding deliverables in contrary to the end date. In estimating how much harm a problem can have on the project there are 3 factors which can help determine the impact. 1) The first one is budgetary impact, which looks at the increase in cost or reduction in funding, 2) Time impact, how will the problem affect the timeline and 3) Quality impact, will it affect the quality or performance. ^[10]

How to identify/ recognize optimism bias in teams and how to handle it

Transparency

You need to have transparency and authority within our team. If you don't have transparency or don't know how to change or have authority over your team, then practice your people skills. ^[11] Here you can look at the different biases you should aim to avoid, as transparency can help to prevent biases in our team.

Identify though moral hazards, e.g. Free-riding ^[12]

A sign of ones team being overly optimistic can be for some of them to "slack off". This behavior lead others to be effected, as they scale back on effort when some agent is optimistic in team.

"… some agent’s optimism bias makes the whole team inefficient to some extent, and that teams staffed with some optimistic agents tend to underperform those without."

Which can conclude that optimism bias, can be identified though moral hazards and identifying overly optimistic agents.

Appoint a leader ^[12]

- Appoint an optimistic leader

An important aspect to consider is appointing a leader who can influence by example and guide the efforts of their followers. In a study conducted by Jian Wang, involving both rational and optimistic agents, it was found that both types of agents tend to be more productive when led by an optimistic leader rather than a rational one. Additionally, introducing leadership into teams helps mitigate the free-rider problem and enhances team welfare. However, it is crucial to select the right kind of leader, as choosing E.g a rational agent as a group leader can negatively impact the productivity of optimistic agents. Conversely, when an optimistic agent assumes the leadership role, it results in increased team welfare and productivity

Seeing scenarios from an outsider’s perspective

The inside and outside view as Kahneman describes, where the inside view is to understand the details of the problem and the outside view is to reference other sources to compare and predict the outcome based on others' experiences. ^[13]

"

• “Identify an appropriate reference class” – Look for a general category to put your task in and use it as a reflection and comparison point.

• “Obtain statistics for this reference class” – Look for statistics on how long it takes to complete the type of task on average. These are your “base rates”.

• “Use specific information about the case to adjust the baseline prediction” – If there are certain concrete things that you think are worth changing your predictions for, use your judgment to make prediction adjustments. " ^[14]

Annotated bibliography

Bent

Jian

Kahneman

References

1. ↑ ^{1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11} Bent Flyvbjerg, Project Management Institute (2021) Top Ten Behavioral Biases in Project Management: An Overview, DOI: 10.1177/87569728211049046
2. ↑ Jason Dolfi, Edwin J. Andrews, The subliminal characteristics of project managers: An exploratory study of optimism overcoming challenge in the project management work environment, International Journal of Project Management, Volume 25, Issue 7, 2007, Pages 674-682,ISSN 0263-7863,https://doi.org/10.1016/j.ijproman.2007.02.002.
3. ↑ ^{3.0 3.1 3.2} Blanco, Fernando. (2017). Cognitive bias. 10.1007/978-3-319-47829-6_1244-1.
4. ↑ Obermaier, M., Koch, T., & Baden, C. (2015). Everybody follows the crowd? Effects of opinion polls and past election results on electoral preferences. Journal of Media Psychology, 1–12. doi:10.1027/1864-1105/a000160.
5. ↑ Yechiam, E., Druyan, M., & Ert, E. (2008). Observing others’ behavior and risk taking in decisions from experience. Judgment and Decision making, 3(7), 493–500.
6. ↑ DS/ISO 21502 (2020) Project, programme and portfolio mangement - guide on project management
7. ↑ ^{7.0 7.1} (INSERT MORE****) https://emeritus.org/in/learn/team-management-meaning-and-importance/ (INSERT MORE****)
8. ↑ "Understanding Management and Leadership Styles". Chartered Management Institute. Retrieved March 7, 2018.
9. ↑ "Management Styles Explained". Films on Demand. Films Media Group. Retrieved March 7, 2018.
10. ↑ Leading Project Teams: The Basics of Project Management and Team Leadership, Cobb, A.T., p. 89-119, SN:9781544302737, https://books.google.dk/books?id=KX9ZDwAAQBAJ,(2011), SAGE Publications
11. ↑ James P. Lewis, Team-Based Project Management, Beard Books, 1998, ISBN; 1587982293, 9781587982293
12. ↑ ^{12.0 12.1} Jian Wang, Xintian Zhuang, Jun Yang & Jiliang Sheng (2014) The effects of optimism bias in teams, Applied Economics, 46:32, 3980-3994, DOI: 10.1080/00036846.2014.948678
13. ↑ Daniel Kahneman, Dan Lovallo, (1993) Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking. Management Science 39(1):17-31.
14. ↑ https://thedecisionlab.com/biases/optimism-bias