Written for EO by Dr. Gleb Tsipursky, disaster avoidance expert, speaker and author. 

You probably heard the advice for entrepreneurs that “failing to plan is planning to fail.” That phrase is a misleading myth at best and actively dangerous at worst. Making plans is important, but our gut reaction is to plan for the best-case outcomes, ignoring the high likelihood that things will go wrong.

A much better phrase is “failing to plan for problems is planning to fail.” To address the very high likelihood that problems will crop up, you need to plan for contingencies.

When was the last time you saw a major planned project suffer from a cost overrun? It’s not as common as you might think for a project with a clear plan to come in at or under budget.

For instance, a 2002 study of major construction projects found that 86 percent went over budget. In turn, a 2014 study of IT projects found that only 16.2 percent succeeded in meeting the originally planned resource expenditure. Of the 83.8 percent of projects that did not, the average IT project suffered from a cost overrun of 189 percent.

Going over budget can seriously damage your bottom line. Imagine if a serious IT project such as implementing a new database at your organization goes even 50 percent over budget, which is much less than the average cost overrun. You might be facing many thousands or even millions of dollars in unplanned expenses, causing you to draw on funds assigned for other purposes and harming all of your plans going forward.

What explains cost overruns? They largely stem from the planning fallacy, our intuitive belief that everything will go according to plan, whether in IT projects or in other areas of business and life. (more…)