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(OWN-3056) Reference Class Forecasting: Theory and Practical Application

Level: Intermediate
Venue: 2019 AACE International Conference & Expo, June 16-19, 2019, New Orleans, LA, USA

Abstract: This paper introduces the concept of reference class forecasting (RCF) which, when properly implemented, can improve project planning and more accurately predict final project outcomes. However, RCF, on its own, may not be the fully recommended approach.

To implement RCF it is important to identify relevant past projects, or applicable elements of past project scope, that can be used as reference points or benchmarks. Once these relevant benchmarks have been established and converted into a meaningful reference class distribution, project planners can use these known external elements to improve project planning and help alleviate optimism bias in their project plans. Recognition and treatment of project risk is also improved through this process. This methodology can produce a project plan that is more likely to approximate a project’s outcome.

Project planning often contains elements of optimism bias. Even when project planners are aware of the potential to do so, overly optimistic cost estimates and schedules are produced. Also, all too often, risks tend to be overlooked or downplayed during the planning process. The tendency to “bake in” overly optimistic outcomes into project planning, per several well-known, analytical studies and scholars [1], is simply human nature. Also, several different approaches and guidance have been developed and deployed by different professional organizations and government agencies [2] to reduce or alleviate overly optimistic project planning.