“You have done an amazing job to get here”
An edited excerpt of Professor André Spicer’s speech to MBA graduates at the Dubai Graduation Ceremony on Monday 1 May 2023
Let me start by not congratulating you. I want to congratulate your friends and family who are here today. Yes, you went to the lectures, read the case studies, and wrote the assignments. It’s a big task and you have done well to get through it all. However, your friends and family have had the really hard job. They have had to listen to your complaining. They have had to hear you talking about the obtuse theories. They have had to take care of all the practicalities in life while you finished your dissertation. So, friends and family – well done!
Now, graduates – let’s talk about you. You are all very smart people, after all you have just graduated from an MBA. You have taken on leadership roles. You are also trusted with delivering projects – large and small.
But like any smart person who has to take responsibility for leading large projects, you have probably encountered one of the most common diseases in the corporate world – the planning bias.
To explain exactly what this potentially deadly disease is, let me give you an example. You probably all know the Sydney Opera House – that magnificent building in Sydney harbour. What you might not know is that the Opera House was originally supposed to cost $7 million and take a few years. It ended up costing $102 million and taking over 15 years to complete. Jørn Utzon, the architect who designed the building and won the Pritzker Architecture Prize for it, quit halfway through the project. He never visited his most famous building.
Now you might be thinking to yourself – that is creative people like architects for you! They come up with crazy ideas which are impossible to implement – and surprise, surprise, they take much longer to implement that expected. But before you get too smug, think of the projects which you have been involved with. It could be a home renovation, launching a new product, or even your dissertation.
Now be honest with yourself. How much did you think that project would cost when you started? How long did you think it would take to complete? How many benefits did you think it would deliver?
Some of you might have had your projects come in on cost, on time and with the benefits planned. Congratulations! You project gurus are in a tiny minority. The majority of us mere mortals find that our projects cost much more than we thought they would, take much longer, and the end results aren’t quite as impressive as we hoped.
Here’s one example which is close to home. A psychologist asked master’s students how long they predicted it would take to finish their dissertation: the average response was 33 days. When the researchers followed up and asked how long students actually took to complete their dissertation, the result was 57 days. Does that sound familiar to anyone?
This is the planning fallacy in a nut-shell – we tend to be over-optimistic about the costs, speed and benefits of the projects we are involved with.
Hope shines eternal on our plans. But when we put those plans into action, reality has a bad habit of raining on our parade.
The Danish researcher Bent Flyvbjerg has spent decades studying thousands of mega projects. His research has led him to formulate what he calls ‘the iron law of mega-projects’: they are over-budget, over-time, and over-promised, over and over and over again.
I think this iron law doesn’t just apply to mega projects like building a new airport. It also applied to our own mini-projects.
Think of the last time you prepared a festive meal for a lot of family, or planned a holiday or did something out of the ordinary at work. If you had done these things many times before, it may have worked out. But if you were doing something unique – I can only guess the iron law crept in.
So, why is it that so many smart people are so faulty when it comes to their projects?
Researchers working on the topic have identified a few reasons. One is the over-optimism bias. Whenever we plan something, we have a tendency to look on the bright side. We overlook problems, focus on the best-case scenario and ignore the dangers lurking on the horizon. This is often a good thing – we are attracted to people who are positive and upbeat. But it can also be dangerous – only looking at the upside means we can overlook many of the potential problems which lurk around the corner.
A second reason we are often too rosy in our predictions about our projects is ‘strategic misrepresentation’. This is a fancy word for when people pitching a project realise that they might not get the green light if they were totally honest about how long it will take, how much it will cost and how uncertain the benefits are. Smart people quickly realise that to get a project off the ground, you need to low-ball the price, shorten the schedule and over-promise on benefits. This gets people to sign up in the hope that inevitable problems will be solved further down the line.
The planning fallacy can be disastrous – both for our businesses as well as in our personal lives. So, what can we do to improve things?
Avoid the planning fallacy
Experts in the area have identified three things we can do to avoid the planning fallacy.
Instead of just focusing on the intricacies of our own project, we should look at what happened to projects that are similar to ours. That is called ‘reference class forecasting’. Pick projects which are similar to the one you plan and ask yourself: how much did they cost, how long did they take, what benefits did they deliver. By doing this you are likely to get a much more realistic forecast of your project than any of your own wishful thinking.
Build modularity into your projects. Most projects are made up of lots of parts which are intricately linked together. A delay in one part of the project means a delay for the whole project. A modular project is one which has lots of standalone parts which work independently – even if the whole project is not delivered. This is why wind-turbine projects tend to be delivered much more effectively than hydroelectric dams. They have lots of modular parts which can operate independently – and then they fit together as a whole.
Think slow and deliver fast. Much of the time people running a project tend to be keen to announce the start of a project. They cut the ribbon before they have completed the planning. The problem with this is that, once you start delivering, things quickly get costly. A better approach is to spend longer planning and thinking through all the problems which might occur. One way to do this is by running a pre-mortem. This is how it works – before you begin a project, get a group of smart people together who have delivered a similar project before. Ask them to imagine two years in the future and the project has died a horrible death. Then ask them – what went wrong? They are likely to know. Now ask them – how can we avoid this failure? They should have some good ideas. This will have two effects – one is to help manage risk. A second is to get rid of over-optimism.
By doing these three things – asking how similar projects worked out, building modularity into your projects and thinking a bit more before you begin to deliver – you help to ensure your projects get delivered on time, to budget and with the required benefits.
I think these lessons are useful not just for those of us who have to run large projects at work. They are useful piece of advice in everyday life as well. They should help to make any project – whether it is planning a family meal, a holiday or house renovation – much more effective and much less stressful.
Now that you are at the end of a big project – your MBA – let me congratulate you once again. You have done an amazing job to get here. We expect great things from you.
Once again, dear graduates – congratulations!