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” The Planning Fallacy” and law – Why do we underestimate how long something will take and why does it matter?



The planning fallacy and law – how this impacts fees

Estimating how long something takes can be difficult, and we often underestimate how long something will take.

Accurate estimates are important in professions that charge based on time, including law, because underestimating how long something can take can result in undercharging.

Why do we get it wrong and how can we fix it? Psychologists provided the answer with a theory known as “the planning fallacy”.


What is it?

The planning fallacy is a cognitive bias identified by Daniel Kahneman and Amos Tversky in 1979.

They described this as “the tendency to underestimate the amount of time needed to complete a future task, due in part to the reliance on overly optimistic performance scenarios.”

The phenomenon they identified explains our tendency to underestimate the amount of time it takes to complete a task, even if we have done this before.

The theory came about from these psychologists watching their colleagues at work. They noticed they regularly underestimated how long a project would take to complete, even if they had previously failed to finish projects and missed deadlines. For some reason, they were not learning from their past mistakes.

In practice, this means that even though you have done a task many times before and have expert knowledge, there is a high chance that you will not allow enough time to complete your work.


Why is it important for lawyers?

A lawyer’s time is very important, it is the metric used for pricing, bonuses, measuring efficiency, and much more.

It is essential to know how long a task will take when calculating what to change. This applies whether you are working out an hourly rate quote or a fixed fee.

An inaccurate prediction means that work takes longer than you expected. This can mean having a difficult conversation with a client to increase the fees or working for less than you should.

Understanding how long a task will take is not just vital for pricing, it is essential to maintain a balanced workload, ensure that deadlines are met, and for the allocation of resources.


Why does it happen?

We are too optimistic and plan for perfection. We assume there will be no delays, that everyone will do their best, and that all resources are available when we need them. Unfortunately, matters are never perfect, and problems and delays are inevitable.

When planning a project, we tend to focus on the successful conclusion rather than how we get there. We plan the steps we expect to take, but we do not give enough thought to potential problems and what might slow us down.

We have a bias towards optimism, especially where our abilities are concerned. This means we overestimate how capable we and our team are at meeting our objectives.

We remember what we did right last time and blame delays on other people. This leads to a false belief that they will not happen this time. Although that delay might not occur, a delay may be caused by another problem.

We forgot how long it took last time. Memory is not perfect, unless we kept a record, it is easy to think it took less time than it did.


What is the impact?

You have more work to complete in the allocated time than you expected. This can impact your business and potentially your private life.

Under quoting leads to spending more time on that project than you should. This means that you are not charging as much as you could, and your business is not as profitable as it should be.

Your deadlines could be missed.

Rushing to finish can lead to mistakes.

All this can lead to unhappy clients and increased stress.


How to avoid it?

If you are aware of the bias, we can start to take steps to prevent it, although simply being aware of the bias is not enough to avoid it. You cannot just say “this time it won’t happen”. You have to adopt a different strategy and follow a different process.


1.Collect the correct Information

Ensure that you have all the information available to provide the estimate. It is difficult to give a correct quote if you do not have all the facts, do not know what the client’s objectives are, and cannot plan the work required.


2. Collect data

Memories are imperfect, it can be difficult to remember accurately how long a previous task took.

If you keep records you can use data from a similar task you completed in the past.

It can help to keep a record of the time it took, compared to the time that you originally estimated.

You need to be aware that no two tasks are identical and the data from the previous task can only work as a guide.

Use technology to keep track of your data. Records are more reliable than memory.


3 Segmentation

It can help to break up a project into component parts. We are much better at planning for small projects. Estimates for small steps are remarkably accurate and you are less likely to underestimate.


4 Have regular checks and reviews.

It can be easier to ensure budgets or deadlines are hit by breaking tasks down into smaller sections, have regular checks on your timetable, work done and costs/budgets. Early identification of a problem can make it easier to take corrective steps.


5  Include others

People are more likely to make accurate predictions about another person’s work than their own. Try thinking about how long your colleague would take rather than how long you would take.

This is because we are less likely to overestimate others’ completion times and make better use of past experiences.

It may assist to obtain advice from another person, a colleague, or an expert. They are not affected by unconscious bias.


6 Competition.

Some fees are fixed by other factors such as market rates, or a need to be competitive.

It is still important to be aware that tasks are likely to take longer than expected and have a realistic idea of how long something takes. You can then use this information to review your fee structure. The information can be used to assess whether the fixed fee structure accurately how long a task takes and whether that pricing structure is correct.

You can use the data to make an informed decision about how long you spent, and compare it to the time you believed you took. You can assess whether spending the additional time is worth it.

Once you have an accurate idea of the work involved in a task, you can start to look at how to work more efficiently.