Quality Control and Due Diligence in Project Management: Getting Decisions Right by Taking the Outside View

TL;DR

This paper presents a methodology using the outside view and behavioral insights to improve decision quality and accuracy in project management, demonstrated through a real-life case study.

Contribution

It introduces an eight-step procedure for applying the outside view to project due diligence, addressing biases in front-end estimates and improving decision reliability.

Findings

The procedure effectively identified cost overruns in a multibillion-dollar project.

Applying the outside view reduces bias in project estimates.

The approach enhances decision quality in project management contexts.

Abstract

This paper explores how theories of the planning fallacy and the outside view may be used to conduct quality control and due diligence in project management. First, a much-neglected issue in project management is identified, namely that the front-end estimates of costs and benefits--used in the business cases, cost-benefit analyses, and social and environmental impact assessments that typically support decisions on projects--are typically significantly different from actual ex post costs and benefits, and are therefore poor predictors of the actual value and viability of projects. Second, it is discussed how Kahneman and Tversky's theories of the planning fallacy and the outside view may help explain and remedy this situation through quality control of decisions. Third, it is described what quality control and due diligence are in the context of project management, and an eight-step procedure is outlined for due diligence based on the outside view. Fourth, the procedure is tested on a real-life, multibillion-dollar project, organized as a public-private partnership. Finally, Akerlof and Shiller's recent discussion in economics of "firing the forecaster" is discussed together with its relevance to project management. In sum, the paper demonstrates the need, the theoretical basis, a practical methodology, and a real-life example for how to de-bias project management using quality control and due diligence based on the outside view.