Reference class forecasting
Contents |
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 due to human judgment 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. they tend to overestimate the benefits of those same actions. Such error is caused by actors taking an "inside view,"
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 which emphasizes the need of applying the RCFM. RCFM is recommended by the American Planning Association which “encourages planners to use reference class forecasting in addition to traditional methods as a way to improve accuracy. The RCF attempts to fit a certain event into a probability of distribution of comparable class reference. Furthermore, this method of enhancing decision-making in light of un-certainties has proved to be effective. It allows for adjustments to be made in the original cost-benefit analysis (CBA) so the plan includes margin errors.
Annotated Bibliography
References
- ↑ 1.0 1.1 "https://app-knovel-com.proxy.findit.dtu.dk/web/toc.v/cid:kpGPMBKP02/viewerType:toc/root_slug:viewerType%3Atoc/url_slug:root_slug%3Aguide-project-management?kpromoter=federation/A Guide to the PROJECT MANAGEMENT BODY OF KNOWLEDGE"
