Strategic plans, too, involve estimating the future costs and benefits of investments, To date, such calibrations have been limited largely to the field of project management, but forecasts made during strategic planning confront similar challenges.

In the past 20 years, the use of this technique has gathered impressive momentum, with hundreds of articles highlighting the methodology’s application in both academic and practical settings. The two collaborators went on to propose a corrective procedure called “reference class forecasting” that involves complementing the inside view with data on real-world outcomes, or “base rates,” from a reference class of similar cases. 17–31.Īs a result, many forecasts are overly optimistic. The terms “inside view” and “outside view” were proposed by Daniel Kahneman and Dan Lovallo in “Timid choices and bold forecasts: A cognitive perspective on risk taking,” Management Science, January 1993, Volume 39, Number 1, pp.

Observed that even experienced planners tend to underestimate the cost and time required to complete projects, they termed the phenomenon “planning fallacy.” They argued that this tendency results from people making forecasts based on the specifics of the case at hand combined with their personal experience and intuition (commonly referred to as “the inside view”), without taking into account the distribution of outcomes of similar cases (“ the outside view”). Daniel Kahneman and Amos Tversky, “Intuitive prediction: Biases and corrective procedures,” TIMS Studies in Management Science, 1979, Volume 12, pp.

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