Contruent Blog

The Planning Fallacy and Its Costly Consequences for Megaprojects

March 2023

It’s the early stages of a mega-construction project: a massive multibillion-dollar undertaking that will transform an environment, reconfigure a transportation network or reshape an energy grid. Everyone involved is swept up in the excitement, knowing key stakeholders will be in the media spotlight, careers will be made and reputations burnished.

It’s precisely at such times—when the pre-construction rush is at a fever pitch—that better judgments are routinely cast aside and instincts ignored. Seasoned construction executives convince themselves that excessively ambitious schedules will be achievable and that overly optimistic budget parameters can be maintained.

Ground is broken, and another mega-construction project soon falls victim to the planning fallacy.

Planning budgets and plotting schedules with rose-colored glasses

The planning fallacy is a phenomenon in which predictions about the amount of time required to complete a future task display an optimism bias, leading to an underestimation of the time needed.

What’s an optimism bias? It’s a cognitive state—also known as unrealistic optimism—that causes someone to believe that they are less likely to experience a negative event or outcome.

Optimism bias runs rampant during the planning phases of many projects. And the bigger the project, the more likely optimism bias will occur, with exponentially more expensive consequences.

Mega-construction projects, after all, are not just magnified versions of smaller projects. As the Swedish economist Bent Flyvbjerg states in The Iron Law of Megaproject Management, “Megaprojects are a completely different project in terms of their level of aspiration, stakeholder involvement, lead times, complexity, and impact….The potential benefits of building the right projects in the right manner are enormous and are only equaled by the potential waste from building the wrong projects, or building projects wrongly.”

Factors that fuel the planning fallacy

Flyvbjerg notes that conventional mega-construction project delivery has a dismal performance record in terms of actual costs and benefits. It’s easy to see how the following characteristics of megaprojects contribute to the planning fallacy:

  • Long planning horizons and complex interfaces make megaprojects inherently risky
  • Decision-making, planning, and management are typically multi-actor processes involving multiple stakeholders—public and private—with conflicting interests
  • Technology and designs are often non-standard, leading to “uniqueness bias” among planners and managers who tend to see their projects as singular, which impedes their learning from other projects
  • There is often an over-commitment to a particular project concept at an early stage, resulting in “lock-in” or “capture,” which reduces the exploration of alternatives and makes “fail slow” far more likely than “fail fast”
  • The project scope or ambition level will typically change significantly over time
  • Statistical evidence shows that complexity and unplanned events are often unaccounted for, resulting in inadequate budget and time contingencies

Over budget, over time, over and over

With such factors driving decisions at the planning stage and throughout the project lifecycle, it’s hardly surprising that nine out of ten megaprojects have cost overruns.

But as Flyvbjerg notes, overruns of 50 percent or more are not uncommon. Denver International Airport had a cost overrun of 200 percent, surpassed by Boston’s Big Dig (220 percent), the Sydney Opera House (1400 percent), and countless others.

And only one in ten megaprojects is completed on time—a level of consistent under-delivery that led Flyvbjerg to coin the iron law of megaprojects: “Over budget, over time, under benefits, over and over again.”

Breaking the planning fallacy pattern

How can you ensure that your mega-construction project doesn’t get added to the long list of projects that came in well behind schedule and far over budget?

Start with a clear understanding of optimism bias and how a project’s massive scale and the attendant media attention make it more likely. Educate every one of your teams about its dangers—because the planning fallacy applies not just to a project as a whole, but to virtually every facet within it.

Make sure your people don’t get swept up in the pre-construction mania. Your managers and professionals have decades of experience and sound judgment that must not be overridden in the media excitement. Insist that best practices and hard facts inform your risk assessments and avoid making decisions based on best-case scenarios.

Don’t rush the planning phase; that critical time when budgets and schedules are drafted. “Measure twice, cut once” is sound advice at this stage, when added scrutiny and dispassionate re-reviews of estimates and timelines can pay huge dividends.

After all, misjudgments and overly optimistic assessments made at the beginning reverberate through the entire project, and the bigger the project, the more profound the reverberations.

The right project controls software can make a significant difference

When the stakes are highest, you need resources designed for the complex challenges of mega-construction projects.

You need resources that enhance your ability to estimate and plan more effectively. Resources that allow you to carefully track project performance and progress so that you can make necessary course corrections sooner and more accurately. Resources that will enable data to be shared across stakeholders within and without your organization.

You need project controls software that’s ready to deploy right out of the box and deliver:

  • Estimating—with hundreds of configurable forms that enable you to efficiently manage this complex, time-intensive process
    Business Outcome: Reduce Risk of overrun by ensuring all costs are thoroughly captured and planned.
  • Contracting—create prime contracts, manage RFPs, conduct bid analysis
    Business Outcome: Reduce Risk of Contract delays and overruns through better planning and Supply Chain Coordination
  • Earned Value Management—with a robust earned value engine that delivers the best prediction of CPI/SPI
    Business Outcome: Optimize Spend & Performance with more accurate forecasts and tracking
  • Dashboards & Analytic Tools— for all project stakeholders, from executives to end users, enhancing the efficiency and accuracy of change management
    Business Outcome: Improve Visibility to Make Informed Decisions Faster!

Avoid optimism bias and the planning fallacy

With Contruent capital project management software, you can plan more effectively at the critical early stages of a project, and more accurately monitor progress against your budget and schedule.

Contruent project management software delivers the tools that help you sidestep the planning fallacy across the entire mega-construction project scope and throughout the entire mega-construction project lifecycle.

Don’t Let Optimism Bias and Media Excitement Derail your Project

Want to learn more? Speak to a Contruent professional today.