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This one rule of probability is why your finance predictions are wrong

Growth for the Operational-Minded CFO Series


By Mike Psenka, CEO, Moovila



Your people are great. Everyone shows up, works hard, and – for the most part – finishes tasks on time. Your project and program managers are skilled, smart, and create what look like terrific project and onboarding plans. Still, your company often delivers projects late. And, when a project is on time, it’s because everyone threw together for a desperate, all-hands-on-deck, last-minute push.


This unpredictability wreaks havoc on your financial forecasts.


No one can accurately predict when revenue will be captured, provide a realistic cost for human resources, or correctly estimate revenues within a timeframe. It’s not good for your employee retention, either, among other things.


It feels like a paradox. That’s because that’s precisely what it is. In probability, the problem in your project plan is mathematical – equivalent to a concept called the birthday paradox.



Using this theory, I’ll show you why your projects are late, that this is completely predictable, and how to – mathematically – fix it.


The Birthday Paradox

According to the birthday paradox, if you have a room with 23 people in it, there is a 50 percent chance that two of them will share the same birthday. That seems unlikely, right? But if you raise the number of people in that room to 75, the chance that two will share a birthday goes up to 99.99. Most people have trouble believing this. But it’s mathematically true.


If you want to fight me on it, that’s because the first thing the birthday paradox demonstrates is that humans are terrible at intuiting probabilities. We are pretty good at intuiting arithmetic. But our minds cannot feel their way through probability.


The Project Paradox

For lack of better tools or data, though, intuition is what people typically use to calculate necessary resources, time on task, and even the most vital part of a project plan: The critical path to completion.


If you apply the birthday paradox to projects, it’s easy to prove – mathematically – that they will probably be late.


Let’s say you have a simple project of 100 tasks, 20 of them are crucial to on-time completion – or on the critical path. Your team is 90 percent reliable, meaning – for the sake of the math – that they finish tasks on time 90 percent of the time.


Intuitively, you might assume, given those numbers, that about 90 percent of your projects will be completed on time.


Mathematically, though. That’s very far from the truth. And the truth is what you are experiencing in real life – absent the hope and self-deception inherent in human intuition.


The math behind why work gets delayed and why poor dependability crushes outcomes.


Even on a small project like this one, you will finish on time only 12.2% of the time. If your team’s productivity drops to 80 percent? Your projects will be completed on time only 1.2% of the time.


Complex projects will probably be late


That’s brutal, right? And things get worse as projects get more complex.


Projects, or corporate programs, with thousands of tasks, hundreds of them on the critical path, are more typical in construction, software delivery, manufacturing, and most complex industries.

So, your projects are more likely to have 100 tasks – or more – on the critical path. If your team is excellent – with a 95 percent completion rate on all tasks – you still only realistically hope to deliver 0.6 percent of your projects on time.


This feels so wrong. But it’s just math.


The Project Paradox Formula

The solution to this problem is simple. Stop using intuition to calculate complex projects. Use math instead.


The monster in every project


Intuition being substituted for accurate data and mathematical accuracy is the monster that lurks in every complex project. But accurate accounting in this area is difficult without a tool that can capture all the relevant data and constantly do the math. Because not only is it hard to calculate these things but they are constantly changing.


Beating this monster, requires that you shift your thinking and planning away from siloed tools or even shared list managers. Instead adopt a wholistic, transparent process that calculates everything from time on task, critical path, time to project completion, and resource availability based on actual captured data, not human estimates. This tool needs to monitor everything 24 hours a day and alert everyone involved when tasks on the critical path are in danger, thereby raising awareness of them above the pool of ordinary tasks.


Take a look at the RPAX tool in Moovila Activate. It is exactly what your team needs to facilitate and instill the precision of thought and mathematical accuracy into project management you need to escape the paradox. It eliminates risk and keeps the critical path in front of the hive mind so that vital tasks get completed on time. It will allow you to predict accurate completion dates and meet those dates consistently. That will eliminate much of the guesswork from financial forecasts, resource management, and so many other essential business operations.


If you enjoyed this post, you may enjoy the original webinar it is based on: Watch on demand now


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Mike Psenka is the CEO and founder of Moovila, a project portfolio management automation system that uses AI and scoring to create projects plans that are a single source of truth.

 

Read the rest of the posts in the Growth for the Operational-Minded CFO Series:


Why CFOs should be thinking about customer onboarding





How to prevent project plans from killing your profits


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