So… if there is a 10% chance that there will be a 25% cost overrun, and a 90% chance that the unexpected expenses will fall within the contingency budget, should the budget be 125% projected cost, or 102.5% projected cost? If there are 6 items on the agenda, and a 95% chance that each of them will take 5 minutes but a 5% chance that they will take 15 minutes, how long should the meeting be scheduled for?
Keep in mind that meetings will expand to fill the allocated time, even if they are completed before then, and projects will tend to use their entire budget if possible.
Granted, some people budget without a ‘contingency’ line item, but budgeting for the expected serious cost increase doesn’t significantly reduce the odds of going over budget, because the frequency of a serious overrun is so low that the expected cost is much smaller than the actual cost should one occur.
Expecting all projects to complete on time and within budget, now that IS a planning fallacy.
So… if there is a 10% chance that there will be a 25% cost overrun, and a 90% chance that the unexpected expenses will fall within the contingency budget, should the budget be 125% projected cost, or 102.5% projected cost?
Which is entirely the wrong way to go about the problem. If this project is critical, and it’s failure will sink the company, you really, really want to be in a position to handle the 25% cost overrun. If you have ten other identically-sized, identically-important project, then the 102.5% estimate is probably going to give you enough of a contingency to handle any one of them going over budget (but what is your plan if two go over budget?)
Thinking in terms of statistics, without any actual details attached, is one of the BIG failure modes I see from rationalists—and one that laypeople seem to avoid just fine, because to them the important thing is that Project X will make or break the company.
Keep in mind that meetings will expand to fill the allocated time, even if they are completed before then, and projects will tend to use their entire budget if possible.
I’d suggest that this is a solvable problem—I’ve worked in multiple offices where meetings routinely ended early. Having everyone stand helps a lot. So does making them a quick and daily occurrence (it becomes routine to show up on time). So does having a meeting leader who keeps things on-topic, understands when an issue needs to be “taken offline” or researched and brought up the next day, etc..
If this project is critical, and it’s failure will sink the company, you really, really want to be in a position to handle the 25% cost overrun
So, to refine Decius’ formula from above, you’d want to add in a variable which represents expected marginal utility of costs.
Thinking in terms of statistics, without any actual details attached, is one of the BIG failure modes I see from rationalists
I don’t think the problem here is thinking in terms of statistics; I think that the problem is attempting to use a simple model for a complicated decision.
I don’t think the problem here is thinking in terms of statistics; I think that the problem is attempting to use a simple model for a complicated decision.
Both geeks and laypeople seem to use overly simply models, but (in my experience) they simplify in DIFFERENT ways: Geeks/”rationalists” seem to over-emphasize numbers, and laypeople seem to under-emphasize them. Geeks focus on hard data, while laypeople focus on intuition and common sense.
“Intuition and common sense” sound more like styles of thought process, not models. The models in question might be called “folklore” and “ordinary language” — when thinking “intuitively” with “common sense”, we expect the world to fit neatly into the categories of ordinary language, and for events to work out in the way that we would find plausible as a story.
If you have a project which will bankrupt the company if it fails, then it does not have a budget. It has costs. If you have multiple such projects, such that if any one of them fails, the company goes bankrupt, then they all have costs instead of budget.
Note that I’m assigning such a large negative value to bankruptcy such that it is trivially worse to be bankrupt with a large amount of debt as it is to be bankrupt with a smaller amount of debt- if the sunk costs fallacy applies, then there is a fate significantly worse than cancelling the project due to cost overruns; funding the project more and having it fail.
Tricks to avoid long meetings are different than figuring out how long a meeting will last.
Tricks to avoid long meetings are different than figuring out how long a meeting will last.
Thus it instead being in response to the idea that meetings will expand to fill their schedule—if you don’t solve that, then scheduling is that much less reliable.
If you have a project which will bankrupt the company if it fails, then it does not have a budget.
Yes it does; even if the budget is “100% of the company resources”, that’s still a constraint. Given that the odds of success probably drop drastically if you stop providing payroll, paying rent, etc., then it’s constrained further. It might also be the case that spending (say) 10% of your resources elsewhere will double your profits on success, but you have a corresponding 10% chance of failure because of it.
90% chance of a major success vs 10% chance of bankruptcy is not necessarily a trivial decision.
So… if there is a 10% chance that there will be a 25% cost overrun, and a 90% chance that the unexpected expenses will fall within the contingency budget, should the budget be 125% projected cost, or 102.5% projected cost? If there are 6 items on the agenda, and a 95% chance that each of them will take 5 minutes but a 5% chance that they will take 15 minutes, how long should the meeting be scheduled for?
Keep in mind that meetings will expand to fill the allocated time, even if they are completed before then, and projects will tend to use their entire budget if possible.
Granted, some people budget without a ‘contingency’ line item, but budgeting for the expected serious cost increase doesn’t significantly reduce the odds of going over budget, because the frequency of a serious overrun is so low that the expected cost is much smaller than the actual cost should one occur.
Expecting all projects to complete on time and within budget, now that IS a planning fallacy.
Which is entirely the wrong way to go about the problem. If this project is critical, and it’s failure will sink the company, you really, really want to be in a position to handle the 25% cost overrun. If you have ten other identically-sized, identically-important project, then the 102.5% estimate is probably going to give you enough of a contingency to handle any one of them going over budget (but what is your plan if two go over budget?)
Thinking in terms of statistics, without any actual details attached, is one of the BIG failure modes I see from rationalists—and one that laypeople seem to avoid just fine, because to them the important thing is that Project X will make or break the company.
I’d suggest that this is a solvable problem—I’ve worked in multiple offices where meetings routinely ended early. Having everyone stand helps a lot. So does making them a quick and daily occurrence (it becomes routine to show up on time). So does having a meeting leader who keeps things on-topic, understands when an issue needs to be “taken offline” or researched and brought up the next day, etc..
So, to refine Decius’ formula from above, you’d want to add in a variable which represents expected marginal utility of costs.
I don’t think the problem here is thinking in terms of statistics; I think that the problem is attempting to use a simple model for a complicated decision.
[edited for grammar]
Both geeks and laypeople seem to use overly simply models, but (in my experience) they simplify in DIFFERENT ways: Geeks/”rationalists” seem to over-emphasize numbers, and laypeople seem to under-emphasize them. Geeks focus on hard data, while laypeople focus on intuition and common sense.
“Intuition and common sense” sound more like styles of thought process, not models. The models in question might be called “folklore” and “ordinary language” — when thinking “intuitively” with “common sense”, we expect the world to fit neatly into the categories of ordinary language, and for events to work out in the way that we would find plausible as a story.
If you have a project which will bankrupt the company if it fails, then it does not have a budget. It has costs. If you have multiple such projects, such that if any one of them fails, the company goes bankrupt, then they all have costs instead of budget.
Note that I’m assigning such a large negative value to bankruptcy such that it is trivially worse to be bankrupt with a large amount of debt as it is to be bankrupt with a smaller amount of debt- if the sunk costs fallacy applies, then there is a fate significantly worse than cancelling the project due to cost overruns; funding the project more and having it fail.
Tricks to avoid long meetings are different than figuring out how long a meeting will last.
Thus it instead being in response to the idea that meetings will expand to fill their schedule—if you don’t solve that, then scheduling is that much less reliable.
Yes it does; even if the budget is “100% of the company resources”, that’s still a constraint. Given that the odds of success probably drop drastically if you stop providing payroll, paying rent, etc., then it’s constrained further. It might also be the case that spending (say) 10% of your resources elsewhere will double your profits on success, but you have a corresponding 10% chance of failure because of it.
90% chance of a major success vs 10% chance of bankruptcy is not necessarily a trivial decision.