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Dec 20, 2016 2:30:00 PM3 min read

How to Avoid Planning Fallacy and the Malevolent Hiding Hand in 5 Steps

Everyone misses a deadline sometimes. You think a project might take a week at most, but then it unexpectedly becomes two weeks and you have to send out apologetic emails. But, why does this keep happening to everyone? Scientists call this phenomenon “planning fallacy”.

“The planning fallacy is a phenomenon in which predictions about how much time will be needed to complete a future task display an optimism bias and underestimate the time needed.”
- Daniel Kahneman and Amos Tversky, 1979

As you would guess, time isn’t the only cost at stake; misplaced optimism may also apply to overall costs. This is where planning fallacy’s bigger cousin Malevolent Hiding Hand (MHH) comes in. Unlike Albert O. Hirschman’s original concept of “hiding hand”, MHH goes one step further than planning fallacy. At the beginning of a project, you fail to foresee the potential problems and put too much faith in your capability to deal with them. So, a set of possible and unsuspected threats to profitability and even to the project’s existence is hidden by the MHH. And ignorance costs you dearly when solutions fail to emerge at problematic moments.

There are two reasons behind the Malevolent Hiding Hand:

  1. Pseudo-imitation: When you plan your project, you might think a straightforward application of a widely successful and well-known technique will be enough. This makes the tasks seem less difficult. Do what Google does, be successful, right?
  2. Pseudo-comprehensive program: You may proceed as if all answers have been found; all that remains is faithful implementation. Need for imagination, insight, and application of creative energies is underplayed. This makes the tasks seem all figured out.

Both MHH and planning fallacy cause you to become less risk-averse. This equals more risks undertaken. Now, as you overcome challenges, you are supposed to learn and mature. According to data, this isn’t happening with most people and their projects. On average, for every project completed successfully under the effect of the hiding hand, there are 3.5 projects ruined by MHH. It’s high time for you take control of the situation and reverse the situation for your own benefit.

The mechanisms behind MHH are ignorance, motivated reasoning, and power manipulation. To battle ignorance, knowledge problems need to be addressed. Do you know everything you need to know about the task you’re about to start? If it’s group work, is your team aware of conditions surrounding the project? The critical point here is the overcoming the difficulty of anticipating unintended consequences and systematic effects. Data, charts, graphs, and forecasts are your allies, let them help you.

As for the motivated reasoning and power manipulation, they are easier to handle together. Normally, optimism is unintentional, but power play is deliberate. Beware of attempts on your behalf or others that try to underestimate difficulties/costs and overestimate creativity/benefits. Also, excessive competition for funding creates moral hazard and agency behavior. Motivated reasoning is usually a beneficial tool to guide your psychology towards a goal. But there is a thin line between deliberate underestimates/overestimates and motivated reasoning. Walk carefully in the grey area between optimism and power.

Planning fallacy and MHH are fuelled by optimism and motivated reasoning. These two factors may even cause the secondary effects of later interventions to solve the situation to be ignored. Yet, there are powerful countermeasures you can adopt. Cost-benefit analyses must be improved. Conventional ex-ante cost-benefit analyses must be supplemented by unbiased technical advice. Your institutional setups need to reward correct forecasts and punish wrong ones. External scrutiny is highly recommended.

Here are 5 tips to control the Malevolent Hiding Hand and its cousin planning fallacy:

  1. Make concrete plans that accurately show how, when, and where one will act; implementation intentions help people become more aware of the overall task and see all possible outcomes.
  2. Take actual outcomes of a similar action as a reference; forecast the necessary time amount by this reference.
  3. Allocate a lump-sum time to a task; sum of the time allocated to individual smaller sub-tasks of that task is larger.
  4. Don’t just justify projects on faith in your abilities alone; your policies must reflect MHH.
  5. Run ongoing and retrospective analyses; check your progress and measure your growth.

The “hiding hand” concept is a wonderful play on Adam Smith’s “invisible hand” concept. While it is true that innovation and creativity help you drive costs down and benefits up, never forget you are always subject to the malevolent hiding hand. Follow the tips you’ve just read and proceed with confidence. You will definitely beat any fallacy with the power of knowledge and planning.