“The planning fallacy is that you make a plan, which is usually a best-case scenario. Then you assume that the outcome will follow your plan, even when you should know better” – Daniel Kahneman
Daniel Kahneman is a psychologist, but this quote is so true not only in our everyday lives, but also in our professional pursuits, particularly construction projects. I am sure much of this may be relevant to other business ventures as well.
Those in construction projects mostly follow either of the two extremes:
1. Take risks indiscriminately when starting a new business or when expanding/diversifying the existing business
2. In case of failure, go to the other extreme of building in all risk factors in the costing, and then getting priced out of the business altogether
Failure in business is loss of profits for the promoter and delay in project completion for the client. Both have a very close relationship with each other – client seeks early completion and the promoter delays monetary support to the project, little realising that delay only means more fixed costs, further increasing the losses.
All of this could easily have been avoided, if a middle path was adopted. All possible risks could have been listed, appropriately costed, and finally evaluated for probability of occurrence. A conscious decision could have been taken about incorporating the cost of risk based on probability of occurrence in the final cost.
The trick for winning project, completing them timely, and maintaining your profits, lies in incorporating the risks in the cost based on past experience from the field and not on sentiments. Most of the times, this past experience is not maintained in a retrievable archive and the people on the ground with experience are not consulted. This is a recipe for failure.
I have not been a paragon of success in all that I undertook. But my failures have taught me important lessons.
1. Make a thorough study of the project/business that you want to venture into – whether a startup or an expansion/diversification
2. Do not be scared of facing the possible risks.
3. Evaluate the cost and probability of each risk.
4. Take a conscious decision of which risk to incorporate in your cost based on the probability, not on sentiments
5. Take expert advice to evaluate the probability of risk.
6. The experts will be the people who have worked in the field. Do not hesitate to consult them.
7. Create a retrievable archive of all the risks that you encounter in your business as you grow your business.
8. In time, this archive along with the advice of people in the field will be the ones which will take you successfully to your goal.
Do not plan on the best-case or the worst-case scenarios alone. Find the middle-ground for a lasting success.
If you agree with me on the above, or even if you disagree with me, and you have a success story to share, or if you want me to assist you with your business plans, please write to me at email@example.com captioning the subject line as ‘Mantra for Success – 2’.