09 March 2013

The Expected Finish Isn't

Conventional planning tools produce one or more expected values -- expected finish, expected cost.

"Expected value" is also known as the average or mean. But, an average over what? An average assumes a bunch of things whose values can be added up. Average time or average cost implies a large number of activities whose cost and duration can be averaged.

It also implies that the activities that finish early and below budget will provide the savings to underwrite the activities that finish late and over budget.

More generally, if the calculation of expected value is a valid calculation, the sum of the actual costs of a large number of activities should be close to the sum of their expected costs. Is this what happens in the real world?

Silly question -- it doesn't. Relative to expected values, task and project finishes range from a little early to a lot late, slightly under-budget to major overrun. The sum of the actuals is inevitably greater than the sum of the averages.

A sure sign of insanity is doing the same thing over and over again expecting a different result.

1 comment:

  1. Marc,

    Excellent post!

    Lots of decision analysis is based on "expected" values, and even Clemen and Reilly in their book "Making Hard Decisions," when explaining decision analysis based on "expected" values or "expected" utility offer up some cautions.

    The fact is, in the real world we never really make decisions based on expected values, we make decisons based on our assessment of risk, even if all we are given is expected values.

    Good post!

    Mark Powell

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