Projects tend to exceed planned timelines and budgets. One reason may be that potential project risks are insufficiently reflected in anticipations of project success. Furthermore, project managers’ overconfidence may lead them to assess risk in a biased manner. The present study examines how risk assessment relates to overall anticipated project success and how overconfidence on the part of project managers influences such assessments. We assume that project managers’ risk awareness serves as a mediator between overconfidence and risk assessment. To observe the planning behavior of 204 project managers, we used a standardized, case-based survey. The results show that overconfidence reduces risk awareness among project managers, leading them to assess risks more optimistically and come to more positive conclusions about anticipated project success. When judging project success, project managers only consider the probability of a risk occurring; they do not factor in the impact of said risks on project success should the risks arise. Risks thus seem to be insufficiently reflected in anticipations of project success which might be a reason for high failure rates of projects.
Many challenging decisions are made under uncertainty, forcing managers to judge situations without in-depth knowledge of details or potential future outcomes. Earlier research shows that people tend to be overconfident about the accuracy of their judgments and comparatively optimistic about their future prospects, which means that people believe that they are more likely than others to experience positive events and less likely to suffer negative ones. Managers are likely to make decisions based on overconfident judgments and overly positive assessments of potential outcomes. In this study, we show that overconfidence is higher when little task-specific knowledge is available, which increases the likelihood of making incorrect decisions when faced with low knowledge. In a second step we investigate individual differences in overconfidence, whereby a cluster analysis reveals different behavioral patterns among participants (117 students) with low task-specific knowledge. Two main groups emerge among those with low task-specific knowledge. People characterized by low comparative optimism acknowledge their lack of knowledge and consequently exhibit little overconfidence. The vast majority of participants with low task-specific knowledge, However, display strong overconfidence in the accuracy of their judgments. We propose that self-enhancement motives are a reason for this increased overconfidence. Decision makers must be aware of overconfident judgments and also consider individual differences in overconfidence in order to make the right decisions.
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