# Reference class forecasting Reference class forecasting is a way to estimate a project by looking at what actually happened in a group of similar past projects (the "reference class"), instead of building the estimate from the specifics of the current plan. It rests on [[Daniel Kahneman]] and [[Amos Tversky]]'s work on judgment under uncertainty, and on the distinction Kahneman and Lovallo drew in 1993 between the *inside view* (reasoning from the details of this project, its plan and its obstacles) and the *outside view* (asking how projects like this one usually turn out). The inside view feels more informed but is systematically optimistic, which produces the [[Planning fallacy]]. Bent Flyvbjerg turned the idea into a practical method for infrastructure planning; the UK Department for Transport published it as official guidance in 2004. The method has three steps: 1. Pick a reference class of past projects that are similar enough to the current one 2. Build the distribution of the outcome you care about (duration, cost, overrun) for that class 3. Place your project in that distribution and adjust only if you have strong, specific reasons The weak spot is step 1: different reasonable reference classes give different forecasts (the "reference class problem"). For knowledge workers, the cheapest reference class is your own history. If your last five "two-day" tasks took four days each, that is a better estimate than any plan you write today. This is why tracking [[Cycle time]] pays off. ## References - Kahneman, D., & Lovallo, D. (1993). Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science, 39(1), 17-31. https://doi.org/10.1287/mnsc.39.1.17 - Flyvbjerg, B. (2006). From Nobel Prize to project management: Getting risks right. Project Management Journal, 37(3), 5-15. https://doi.org/10.1177/875697280603700302 (free copy: https://arxiv.org/abs/1302.3642) - Lovallo, D., & Kahneman, D. (2003). Delusions of success: How optimism undermines executives' decisions. Harvard Business Review. https://hbr.org/2003/07/delusions-of-success-how-optimism-undermines-executives-decisions - https://en.wikipedia.org/wiki/Reference_class_forecasting - https://concepts.dsebastien.net/concept/reference-class-forecasting/ ## Related - [[Planning fallacy]] - [[Hofstadter's Law]] - [[Cycle time]] - [[Decision Making]] - [[Cognitive biases]] - [[Project Management (MoC)]]