Project Managers: Don't Kid Yourself

Enhancing Business Mobility with Convertible PCs Backup and Recovery for Microsoft Exchange Server Not All QSAs Are Created Equal: What You Should Know Before You Buy Reduce Energy Costs and Go Green Case Study: Trinity Health Care Sign up to receive Security Resource Alerts

July 21, 2003 (Computerworld) -- IT projects fail because managers kid themselves from the start about their chances of success. That's the message Dan Lovallo and Daniel Kahneman deliver in the July issue of Harvard Business Review. When forecasting the outcome of a risky project, they say, decision-makers become swept up by a "delusional optimism." Rather than rationally weighing pluses and minuses, they "spin scenarios of success" while overlooking risks, according to Lovallo and Kahneman.
Lovallo, a senior lecturer at the Australian Graduate School of Management at the University of New South Wales, told Kathleen Melymuka how IT leaders can curb their enthusiasm and inject realism into project forecasting.

What makes IT leaders overly optimistic about a project's chance of success? People's natural inclination is to be optimistic. One of the most ubiquitous findings in social psychology is the above-average effect. When people are asked how they compare to peers in all kinds of areas, almost nobody thinks they're below the mean, which, of course, is logically not possible.

Dan Lovallo of the Australian Graduate School of Management

What is "anchoring," and how might it lead to overoptimism in an IT project? In an IT project, typically the initial plans are really realistic best-case scenarios. If you remain anchored to those, any adjustment away from that is unlikely to get far enough away to get to realism.
In today's economic environment, does the organizational pressure for ROI magnify the tendency to be overly optimistic? Optimism is pretty consistent, but the greater the organizational pressure, the more likely you are to get skewed forecasts. When an organization puts a lot of pressure on people to come up with some sort of very optimistic ROI number, they'll get the number because they're engineering optimism.

You say managers are also prone to the "illusion that they are in control." Can you explain? Managers don't see themselves as gambling or taking risks. They're very proactive in trying to remove all risk in the environment. Frequently they won't even acknowledge that a large degree of risk is still left. When a manager has a plan, he almost always overestimates his degree of control.

Many IT project managers use scenario planning to mitigate risk. Isn't that effective? It could be, and it's good that they do it. The problem is that it's hard to think of all the things that might go wrong. It's easy to think about how you could complete the plan, and that may even be the most likely scenario, but it still doesn't mean it's very likely. So many things can go wrong. Better to look at what's happened in the past with other IT projects as a guide to what's going to happen in the future.

And that's what you call the "outside view"? When you take an outside view, you look at a reference class of similar projects, both in your organization and outside. Then you look at how much they spent relative to their initial estimates, how much time it took relative to what they initially thought. Then you ask, "How does our project differ from these?" You determine your place in that class. Out of that come forecasts that are likely to be more realistic.

How difficult is it to get this outside data? If you're an IT manager, it shouldn't be hard to get this information from inside your firm, and it also tells people what type of data they should be recording for the future. For outside data, consultants like [McKinsey & Co.] are good at helping firms get this. This is a place where there's room for firms to cooperate and there's a role for industry groups in trying to help them figure out how not to waste money.

If I temper my overoptimism about my proposed project, won't I lose funding to a more optimistic competing project? It's difficult. The change has to come from the top of the organization. There has to be a policy and a process that asks people to back things up based on facts.

If I do get funded, wouldn't the more negative outside view destroy my project team's ability to stay "up" and enthusiastic? Here's where it's important to draw a distinction between decision and action. You want the outside view when you're making the decision; when you're taking action, let the optimism seep in.

What if my team and our processes really are better than those in the outside projects cited? You would have reasons to say why they are better, and those reasons should be based on objective predictors of success: the experience of the team, how well the organization has done in the past, how much money is behind it. If, based on this, you figure you're in the 95th percentile of the distribution, then you've got a reason to say that.

What if I'm planning a unique project or working with new technology that really has no track record? This has never happened. It's the first time for you, but it's not the first time somebody tried to install a new IT system with a new technology. So your reference class includes projects with new technologies never used before.

What if my inside view is great and the outside view predicts failure? Do I trust the experience of outsiders more than the projections of my colleagues? The outside view is an objective statistical view. If that suggests that you're going to fail, but the inside-view forecasts suggest you'll succeed, it's time to take a step back and re-evaluate the project and possibly call it quits. The outside view is much, much more likely to be accurate than the inside view.

Melymuka is a Computerworld contributing writer. You can contact her at kmelymuka@yahoo.com.

This is the latest in a series of monthly discussions with Harvard Business Review authors on topics of interest to IT managers.

Print this Story

Send Us Feedback

E-mail this Story

Digg this Story

Slashdot this Story

Don't Kid Yourself Get Over Yourself Facing the Unthinkable

Blind Faith

"Today's US college business professors, hopefully, aren't all like the one who is teaching a Florida university's business major. Maybe..." Read more... "For the first time in 30 years, there were no public offerings from a venture backed company. Look for more..." Read more... Read more Management posts or See all Blogs

Microsoft promises four patches next week Google gives away home-cooked Web application security scanner Storm botnet stages Fourth of July attacks More top stories...

Microsoft trumpets security additions in upcoming IE8 Apple cuts price of high-end SSD MacBook Air by $500 Ultrathin showdown: Apple MacBook Air vs. Lenovo ThinkPad X300 vs. Toshiba Portege R500

This old laptop: Revitalizing an aging notebook on the cheap All it takes is a couple hours and about $125 to breathe new life into an old laptop. Here's how. Bill Gates moves on Is Microsoft's Golden Age over? What are Gates' most memorable quotes? Find out in Computerworld's complete coverage of the end of the Bill Gates era at Microsoft. Five things you should never tell your boss There are some things your CIO definitely doesn't want to hear. Also don't miss the flipside, Five things you should always tell your boss. Hands-On: Firefox 3 fixes what's broke and keeps what's right With its latest version, Mozilla's browser continues to raise the bar for what Web browsers should be. Windows Vista A to Z Reviews, analyses, how-tos, visual tours, hot issues and predictions about Microsoft's new OS. More Continuing Coverage After 9/11: Homeland SecurityAsk a Premier 100 IT LeaderBlackBerry Legal BattleData Security BreachesElectronic VotingFirefoxH-1B VisasHP's Boardroom ScandalHandheld DevicesHurricane Katrina AftermathMicrosoft Legal IssuesMicrosoft's VistaOpen SourceRFID TechnologySCO's Linux FightSarbanes-Oxley ActSpamVoice Over IPWi-FiWindows Meta File VulnerabilityWindows XP Service Pack 3 IT Careers 2010 Four years from now, the IT field will be a vastly different place. Will you be ready? More Special Reports Premier 100 IT Leaders 2007 Best in Class2006 Computerworld Horizon Awards2006 Premier 100 IT Leaders2006 Salary Survey2007 Best Places to Work in IT2007 IT Forecast2007 Premier 100 IT Leaders40 Years of ComputerworldASPs, Take TwoBest Places to Work in IT 2003Best Places to Work in IT 2004Best Places to Work in IT 2005Best Places to Work in IT 2006Business Intelligence Home RunsBusiness Intelligence: Smarter BIBusiness Intelligence: The Future of BICRM Goes VerticalCRM: Sober CRMCareer Planning Guide 2005Careers: IT Profession 2010Computerworld Horizon Awards 2005Data Management: Mining for GemsData Management: Taming Data ChaosDevelopment: Hard-Workin' Web SitesDevelopment: New Tools New ChoicesDevelopment: The New World of Application DevelopmentDevelopment: The Web Services TsunamiDevelopment: Web Services HurdlesDisaster Recovery: Preparing for the WorstE-commerce Grows UpE-mail/Groupware: Big DecisionsFaces of Mobile ITForecast 2006Global MobileHardware: Multiple Cores, Multiple ChallengesHardware: On-Demand Un-HypedHardware: The Shape of Things to ComeHorizon Awards: 10 Cool Cutting Edge TechnologiesIT Management: Guide to Managing VendorsIT Management: Navigating Global ITIT Management: Recovery AheadIT Management: The Future of ITIT Management: The Resourceful Project ManagerInnovative Technology Awards 2004Management: Reinventing ITMicrosoft in TransitionMobile/Wireless Leaders and LaggardsMobile/Wireless: The Untethered WorkerMobile/Wireless: Tiny Gadgets, Huge CostsNetwork Management: Taking ControlNetworking: Turbulence Ahead!Networking: VoIP Goes MainstreamOperating Systems: In the Slow LaneOperating Systems: Linux Goes GlobalOperating Systems: Should You Nix Unix?Outsourcing: Offshore Buyer's GuideOutsourcing: Outsourcing DangersPremier 100 IT Leaders 2004 Best in ClassPremier 100 IT Leaders 2005 Best in ClassROI: Do the Math!Salary Survey 2003Salary Survey 2004Salary Survey 2005Security Action PlanSecurity: Compliance HeadachesSecurity: Proactive SecuritySecurity: Risk and RewardSecurity: Tips From Security ProsSouped-up SecurityStorage: Battling ComplexityStorage: Cheap & Secure Data StoresStorage: Stretching Your Storage DollarsStorage: The Lean Storage MachineStorage: The New Rules of StorageStorage: The Ultimate Backup GuideSupply Chain: Missing LinksSupply Chain: RFID Reality CheckThe Business of SecurityWeb 2.0 SecurityWireless: Wireless At Work All Zones Application Performance Zone Business Continuity Zone Data Center Management Zone Enterprise-Class Security Zone The File Data Management Zone Grid Computing on Windows Zone Security Management Zone ITIL Best Practices Zone The SAS Zone Storage Virtualization Zone Business Intelligence and Analytics Zone See your link here

Computerworld invites all storage industry leaders to join us at an exclusive virtual event! Computerworld invites all storage industry leaders to join us at an exclusive virtual event! Register now and we'll see you LIVE on June 24th at 11am! Go to the webcast  Computerworld Technology Briefing: Meetings @ the Speed of Business Download this Technology Briefing now, compliments of Microsoft! (Source: Microsoft) For large organizations, Web conferencing gives a major boost to collaboration among far-flung offices. For smaller companies, experts say Web conferencing is no longer a luxury but a necessity for everything from webinars to customer presentations. But the real value lies in saving soft costs and in increases in productivity. Download this executive briefing  Taking Control of Software Licensing Get this white paper now! (Source: BDNA) Pricing model changes, virtualization, and vendor audits are just a few of the reasons why software licensing is full of factors outside your control. Accurate information is the best weapon for managing vendors. This white paper discusses new technologies to enter conversations with vendors on your toes, not your heels. Download this white paper  White Papers Read up on the latest ideas and technologies from companies that sell hardware, software and services. Deploying Virtualized NetWare on Linux Whitepaper Toward More Flexible, Next-Generation Collaboration Solutions Driving Business Success Through Workgroup Choice and Flexibility View more whitepapers

• Don't Kid Yourself
• Get Over Yourself
• Facing the Unthinkable
• Blind Faith

• Microsoft promises four patches next week
• Google gives away home-cooked Web application security scanner
• Storm botnet stages Fourth of July attacks
• More top stories 

Intercept Spam & Viruses With MessageLabs MessageLabs is offering a complimentary 30 day trial of its managed Anti-virus and Anti-spam security solutions. MessageLabs guarantees complete protection against all know and unknown email threats. By providing 24 hour support, your business can increase productivity and decrease risk. Register for a complimentary trial and receive a free datasheet. Download this white paper now!

Is Your Company a Great Place to Work? Our annual survey recognizes top employers that offer satisfying and challenging work environments for their IT staffs. Nominate a company here. See the 2007 Best Places to Work in IT report

Enhancing Business Mobility with Convertible PCs For years Pen enabled computing devices have enjoyed great success and acceptance in highly vertical industries like delivery services, auditing and POS. The primary limitations of early pen computing devices, which were the hurdles to early mainstream adoption, were the power limitations of the devices, no stable OS environment for application development, and the lack of a keyboard for traditional input. Now, with the availability of Windows XP Tablet PC edition and Vista, which are both Pen Enabled operating systems, the flexibility afforded by dual function convertible notebooks and a host of 3rd party applications, Pen Computing has expanded into areas like healthcare, insurance, education, retail, and sales force automation. What used to be strictly vertical has now caught on as a preferred alternative to standard notebooks. Is now the right time for you to consider pen computing? Tune in to find out what these amazing mobile devices can do to simplify tasks, expand the utility of a traditional notebook, and increase the ROI of traditional notebook computing. Listen to this podcast now