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In this blog, I want to share an incredible concept that should be implemented during the pre-construction phases of your project: Reference Class Forecasting. This approach can drastically improve your project outcomes, helping you avoid common pitfalls and ensuring that your projects start off right. 

I’ll guide you through what it is, how it fits into your construction workflow, and provide a valuable resource that could change your life. If you’re ready to take your planning to the next level, read on.

What is Reference Class Forecasting?

Reference class forecasting is a method of gathering data from similar or relevant projects to predict success for your own. Whether you are evaluating the overall budget, schedule, or anticipating potential overages, this method uses historical examples to help you estimate a more accurate timeline and budget.

 The key is to combine this with a risk analysis. As Bent Flyvbjerg and Dan Gardner explain in their book How Big Things Get Done, risk management is essential. You must identify risks, plan for them, and either eliminate them through proper planning, cover them with contingencies, or absorb them—although nobody likes that option.

The lesson here is simple: don’t rely on wishful thinking. If a risk exists, it will likely materialize. By estimating your days and dollars for each risk and planning accordingly, you can mitigate potential issues before they happen.

Importance of Reference Class Forecasting

One of the biggest challenges in construction is the tendency for people to think that their project is unique, or that their team can beat the odds. The truth is, projects aren’t as different as we often believe.

 Anchoring to a reference class helps you face reality: if projects similar to yours consistently go over budget and schedule by 20%, it’s likely that yours will, too. If you don’t plan for these overages, you’ll face serious consequences—budget overruns, missed deadlines, unhappy owners, and even financial losses.

How to Properly Implement Reference Class Forecasting

Let me take you through the process step-by-step, so you can start implementing this forecasting method in your projects.

Step 1: Identify a Reference Class

Start by identifying a reference class of similar projects—ideally, 50 projects, with at least 20 of them from your local region or market. This might sound daunting, but it’s crucial to get a robust dataset to draw from. In the beginning, you might not be able to get 50 right away, but over time, this should be your goal.

Step 2: Establish Parameters

Once you have your reference class, define the parameters. Are you looking at the overall duration, budget, or just the overages? What data is valid for your forecast? For example, in cases of a force majeure event, you might choose to exclude that data. But in general, you want to aggregate your data in a way that allows you to create a comparative analysis.

Step 3: Dive Deep into the Projects

Next, perform a deep dive into these projects to uncover the root causes behind their results. Understanding what led to their budget and schedule overages will help you adjust your own project’s parameters accordingly. You should base your adjustments on a normal distribution, avoiding outliers and focusing on a more realistic projection of your timeline and budget.

Mitigating Risks Based on Previous Projects

Once you’ve established your forecast, you need to analyze the risks involved in the projects within your reference class. This will allow you to mitigate potential problems early on through proper planning. The goal is to minimize wishful thinking, ensure realistic expectations, and implement a thorough risk management strategy.

Closing Thoughts

In conclusion, reference class forecasting is a powerful tool that can significantly improve your project planning. By basing your budget and schedule estimates on real-world data, you can avoid the pitfalls that have derailed similar projects in the past. Additionally, you’ll be better equipped to mitigate risks, giving your project a better chance of success.

Don’t forget to check out the book How Big Things Get Done—it’s a must-read for anyone in construction. Remember, projects don’t go wrong; they start wrong. By using reference class forecasting, you’ll be giving your project the best possible start.

If you want to learn more we have:

-Takt Virtual Training: (Click here)
-Check out our Youtube channel for more info: (Click here) 
-Listen to the Elevate Construction podcast: (Click here) 
-Check out our training programs and certifications: (Click here)
-The Takt Book: (Click here)

Discover Jason’s Expertise:

Meet Jason Schroeder, the driving force behind Elevate Construction IST. As the company’s owner and principal consultant, he’s dedicated to taking construction to new heights. With a wealth of industry experience, he’s crafted the Field Engineer Boot Camp and Superintendent Boot Camp – intensive training programs engineered to cultivate top-tier leaders capable of steering their teams towards success. Jason’s vision? To expand his training initiatives across the nation, empowering construction firms to soar to unprecedented levels of excellence.

On we go!