How a plumber schooled me in forecasting

Picture the average 2-star hotel bathroom.

A cracked tile on the floor, an outdated sink, and maybe some faded paint.

That’s exactly what my bathroom at home looks like.

But I couldn’t care less.

There are plenty of things I care about. From skiing to cooking. That’s where I spend my money. But the place where I do my business for a few minutes a day, usually with my eyes still half closed? Not so much.

But I’m not alone.

My better half does care about the bathroom.

And so does a potential future buyer of the place.

So after ignoring it for a year or two, I contacted a few plumbers to come and give me a quote to finally bring the bathroom up to snuff.

Two spent an hour on their knees, measuring everything in detail. They shared pictures of other clients, asked dozens of questions, and left nothing to chance.

The third guy? He went down a different route…

He started by asking for my address and wanted to know the size of the bathroom.

“Is it the original bathroom, or has it been renovated earlier?” He continued.

As I waited for his next question, I heard him mumble in the background.

“$46K.”

Excuse me?

“Forty-six thou…” - Yes, I heard you, I said.

But where did that number come from?

“Listen…” he said.

“My company does a bathroom per week. We’ve been doing that for 27 years. We’ve done a dozen in your neighborhood in the past 18 months.

You’ll pick a different tile or paint, or maybe you want a double sink instead of a single one… But that’s about it.

I can come over for a dog and pony show, pretending it’s a scientific study, but the number won’t change.”

You should have seen my face…

What he did is what’s called reference class forecasting. Some of that dates back to the late ‘70s when Kahneman and Tversky published work about decision-making under uncertainty.

If the name Kahneman sounds familiar, it’s the guy who wrote the global bestseller “Thinking, fast and slow” and won the Nobel prize in economics in 2002.

Pretty clever guy.

In 2005, the Danish researcher Flyvbjerg wrote a paper about applying that to project management forecasting and planning, which is where it gets interesting for you and me.

In short, he and his research team explain how we’re terrible at estimating because we take the inside view. We add up everything we know and add a risk margin, but we don’t account for what we don’t know.

On top of that, we usually plan (too) optimistically.

Instead of doing that, they argue you should base your forecast on the actual performance in a reference class of comparable projects.

And while their work is based on big infrastructure projects, that’s exactly what my plumber did too.

Before I asked the plumbers, I also did my homework. I spent a weekend making spreadsheets. My brother made a bunch of drawings, and I added everything up.

My conclusion? $30-35k.

The gap could be because he tried to rip me off. But it’s probably because he does this for a living while I’m clueless.

He knows that in my neighborhood, in homes with the original bathroom, he’ll have to redo the plumbing from the ground up. He also knows there’s a 10% risk of that taking twice as long because of an old leak and rotten concrete.

So he’s adjusting for that based on experience.

And my inside view? Blissfully unaware of such issues.

Which is what makes experience so valuable.

When you start your next project, think about this plumber for a minute.

You might not have done a similar thing dozens of times before, but I bet there’s an outside perspective you can include in your planning.

Can you find lessons learned from previous projects within your company?

Can you contact a colleague or ask an external party with more experience than you have with such a project?

A quick sanity check on your plan might save you an enormous headache down the road, and give all your stakeholders the confidence that you’re on the right track from the start.

Time well spent if you ask me.

Talk soon,
Jasper

PS: if you want your bathroom fixed, please don’t call me. But if you need to stress-test your project plan with someone who’s seen the movie before, I can help. You can learn more about doing a Project Sprint with me here.