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Oxford Reference. Publications Pages Publications Pages. Recently viewed 0 Save Search. Your current browser may not support copying via this button. The over-arching goal is to reduce cost overrun and benefit shortfall by engaging all aspects to increase forecasting accuracy [1]. Through reading this article, a clear and succinct explanation of the strategies and ideas mentioned above will be discussed.
A brief analysis will be given on how it is used in business practice to increase efficiency and a detailed paragraph of the studies' limitations as a theory will also be covered. Optimism bias by definition is a form of cognitive bias. This bias refers to the belief that there are reduced negative externalities about a specific situation [2].
Factors that contribute to Optimism bias is if an individual or corporation has a more informative view of the desired end state of the project, the cognitive mechanisms in use, the information the individual or company has to begin with and the overall mood of the project scope. All these factors significantly contribute to the bias, potentially skewing judgement on a project. Optimism bias can be both positive and negative, for example, an overoptimistic overall outcome of a project's benefits can lead to poor planning, budgeting and other factors in the early stages of the project portfolio.
However, an increased Optimism Bias can be seen as quite a positive aspect of a business plan. An over-confidence in the desired outcome would increase expectations of an individual or company as it is falsely made to look that it is easier to achieve. Although this sounds negative if not met, increased expectations help people in a corporation and the business its self, grow considerably as the company will continuously strive for potential new feats. Not only are potential higher target reached, but self-satisfaction is drastically increased no matter the outcome as noted by Psychologists Margaret Marshall and John Brown's theory of Optimism Bias, presented by Associate Professor of Cognitive Neuroscience Tali Sharot in a TED talk [3].
The study found that when individuals succeed, they attribute their success to their personal traits. This increased satisfaction boosts continual drive for success, even with mishaps, the mentality of individuals has been changed to a higher level of output and thinking.
In corporations, whether largely publicized or not strategic misrepresentation occurs and is almost inevitable. Through various factors may it be political, economic, social or all three cohesively implemented in unity, strategic misrepresentation is often used to seize a potential advantage on another company. This advantage can be exploited when one party or organization knows less information than the other or is relying on the other organizations' information for their own benefit.
When compiling a set of outcomes for a project or plan, one party can purposely increase the number of deliverables or strategically underestimate the costs of the proposed scheme, pre-determining and quite likely also overestimating the potential clients' benefits. Politically speaking, in an organization, strategic misrepresentation can also be witnessed easily.
Applying additional pressure and strain on individuals through manipulation, competing for scarce funds or jockeying for a position all qualify for the same over-arching category. Through this additional pressure, people have now been exposed to a form of bias and are swayed to a specific side for whatever reasoning [1].
It should be strongly noted that although Optimism bias and Strategic misrepresentation are both forms of biases, there is a sizeable difference between the two executions. Strategic misrepresentation, of course, a form of bias, is more a deception technique rather than an Optimism bias which refers to individuals using deceit techniques on one's self.
As mentioned prior, through a greater knowledge of a given topic increases the strategic misrepresentation with respect to pressure, may it be political or organizational. A better demonstration of this theory can be visualised through figure 1, a graph of explanatory power with respect to political and organizational pressure. Furthermore, the same graph clearly shows the Optimism bias has a polar opposite reaction to Strategic misrepresentation when comparing using these two categories.
Reference Class Forecasting is a method of looking to future events by taking relatable situations and their previous outcomes. This approach aims to give a much less biased view on a specific event. A study conducted by Daniel Kahneman and Amos Tversky in shows that when a project is in its beginning stages, judgement of the overall risks of any given events in the project, the total cost and the length of time it will take to complete, is quite often biased, sometimes even without the intention of bias.
This phenomenon is called 'The Planning Fallacy'. This sensation was further investigated also by Nobel Prize winner Daniel Kahneman. The bases of this experience is that without any real means of desire, humans have a tendency to underestimate the time and resources that you will need to achieve your goals, as a corporation or as an individual [5].
The investigation from Kahneman and Tversky proved that it is entirely the norm to have an unplanned Optimism bias about future events. We-can-make-this-up : 5 of the most dangerous words in project management. We can help your teams learn to lead and deliver.
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