Weekly Thoughts: Planning Fallacy vs. Hiding Hand

Here is something that caught our eye this week:

Planning Fallacy vs. Hiding Hand

Entrepreneurial spirit versus pragmatic planning when thinking about 2019 

As we navigate our way through the final weeks of 2018, we, and our partner companies, are beginning to think about our aspirations for the year ahead.  As grand strategic plans of growth initiatives, operational improvements, and talent development begin to formulate alongside the visions of sugarplums dancing in our heads, we try to remind ourselves of common cognitive pitfalls associated with such endeavors.

First, we must be wary of the so-called ‘planning fallacy’.  Initially identified by now renowned economists Daniel Kahneman and Amos Tversky in the late 1970’s, this is basically the human tendency to routinely underestimate how much time and money will be needed to complete a certain task.  While one could be forgiven for poor predictions in entirely new situations, unfortunately, it seems this phenomenon holds regardless of past experience, as explained by some fancy academics:

“From a psychological perspective, the planning fallacy can perhaps be studied most profitably at the level of daily activities.  Consider one familiar example: Academics who carry home a stuffed briefcase full of work on Fridays, fully intending to complete every task, are often aware that they have never gone beyond the first one or two jobs on any previous weekend.  The intriguing aspect of this phenomenon is the ability of people to hold two seemingly contradictory beliefs: Although aware that most of their previous predictions were overly optimistic, they believe that their current forecasts are realistic.  It seems that people can know the past and yet still be doomed to repeat it.” 

While numerous cognitive and social factors contribute to this pervasive shortcoming, one way to protect against the planning fallacy causing trouble is by incorporating the “segmentation effect”, where smaller sub-tasks are given individual time allocations.  Hot tip: when the sum of the sub-tasks is greater than the time estimate for an entire project, it’s time to revisit your projections.

While taking notes on all this pragmatic information, we also couldn’t help but think about famed economist Albert Hirschman’s Hiding Hand Principle, which states that ignorance is good in planning, because if decision makers knew the real costs and difficulties of projects, few ventures would ever get started.”  Once a project is underway, however, one will be forced to “creatively overcome the obstacles because it is too late to abandon the project”. 

We sympathize with the idea that if we knew today how much time, money, and emotional energy it would actually take to realize our 2019 growth initiatives, operational improvements, and talent development ambitions, we might never attempt the projects.  However, we also acknowledge that once we get into it, we’ll probably “figure it out” in unexpected, and unplanned ways.

As we head into planning season, we are reminded that success lies in balancing the tension between these two forces.  While amazing outcomes can result from entrepreneurial optimism and energy, it’s also important that we maintain some semblance of pragmatism when figuring out our 2019 goals.  For us, these two forces are not in direct opposition, but rather the essential elements of building a mature business: figuring out how to dream big while actually executing on a daily basis.  Should be a fun 2019!

Have a great week,

Your Chenmark Team

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