Decision Theory for Planners #104 Playing Planning Poker

Charlie Brown loved sport.

Despite all experience he ran up to the ball believing that this time, for once, just this time, Lucy would not pull the ball away.

Oh dear. His behaviour is a classic example of optimism bias. One of several types of bias that slant our decision making.

Optimism bias is the demonstrated systematic tendency for people to be overly optimistic about the outcome of planned actions. This includes over-estimating the likelihood of positive events and under-estimating the likelihood of negative events.

There is a specific type of this bias which affects planning – it is known as the Planning Fallacy, used in the sense of a project planning fallacy, a tendency to underestimate how is needed to complete a task, even when they have past experience of similar tasks over-running.

The term was first proposed in a 1979 paper by Daniel Kahneman and Amos Tversky.

In 2003, Lovallo and Kahneman proposed an expanded definition where the planning fallacy results in not only time overruns, but also cost overruns and benefit shortfalls (Lovallo, Dan; Daniel Kahneman (July 2003). “Delusions of Success: How Optimism Undermines Executives’ Decisions”. Harvard Business Review: 56–63).

Hofstadter’s Law: it always takes longer than you expect, even when you take into account Hofstadter’s Law.” — Douglas Hofstadter, cognitive scientist and Pulitzer Prize–winning author of Gödel, Escher, Bach: An Eternal Golden Braid

The term ‘fallacy’ implies that it is a logical fallacy – which it is not. I prefer to think of it as the optimistic planning bias.

There is even a concept called the rule of pi, which is to multiply time you think something will take by pi.  (this was invented by Nasa scientist von Tiesenhausen, who invented the lunar rover, as a half joke – perhaps from having to run around in circles).

So what should a project manager do then, add a buffer of X2 or X3.1597…… to each task?  The problem is this is the very worst thing you can do.

Eliyahu M. Goldratt is one of the key thinkers has how to make things run on time and on budget.  His solution is ingenious and ill look at in fully in another lecture  For now only deal with the issue of estimation.

Goldratt noticed that whilst project managers tended to be overoptimistic, those specifically responsible for tasks tended to be pessimistic, was there a connection between the two?  The connection of course is blame avoidance.

As Steve Jobs has observed you cant make excuses the closer you get to vice-president, that privelege is only for lowly workers.

If someone thinks a task might take a day, they might estimate for it to take longer in the project plan.  But this creates problems.  Goldratt noticed that it led to people starting to fully apply themselves to a task just at the last possible moment before a deadline – wryly he called this the Student Syndrome. And of course there is parkinsons law – work expands to fill the time available – to create the impression they are invaluable. Economists would also say this is because the undervaluing of the cost of time leads to demand meeting supply.

Effectivley people are adding a buffer before each task. What then if someone starts a task early, if they do the buffer can be wasted, especially if the project planner doesnt know this and cannot assign a new task.

There is also an equivalent to student syndrome with costs – Parkinsons Law of Finance ‘work expands to fulfill the available budget’.

It is not then a simplistic solution to say that things have gone wrong because we have underestimated – if the ‘solution’ of overestimating can lead to things going badly wrong.

One of the problems is that the longer an estimate is, the more uncertainty it contains.  You are asking someone to give a single point estimation on a probability distribution, with a fixed minimum period (zero) and an unknowably long tail.

A brillaint solution to this is to play what is called ‘Planning Poker’ – this involves a pack of cards using the fibbionoci sequence – 0, ½, 1, 2, 3, 5, 8, 13, 20, 40, 100, which represent days for a task.  Players in a team secretly make an estimate for task length, then reveal their card, and defend it even if the task is not theirs.

This avoids Anchoring – someone saying ‘”I think this is an easy job, I can’t see it taking longer than a couple of weeks” and none wanting to disagree. The seqence of numbers through clever maths deals well with the uncertainty issue. Estimation is also a learnable skill and as with anything else social learning is quicker than individual learning.

Molokken-Ostvold & K. Haugen, N.C. (13 April 2007). “Combining Estimates with Planning Poker–An Empirical Study”. IEEE – found that that estimates obtained with this method were less optimistic and more accurate, than estimates obtained through atomic self assessments for the same tasks.

Better estimates does not however mean that these should be translated into targetted task lengths in a project plan – for the reasons we have discussed.

Estimates are not committments, they are not plans to meet a target.  Decoupling the two, and adopting new tecniques to ensure committments is often the key to solving this dilemma.  You can only make an accurate commitment when  you know you can deliver.

One important technique now widely used in infrastructure planning, to avoid optimism bias in estimating the economic benefits of projects is called Reference Class Forecasting developed by  Daniel Kahneman and Amos Tversky, and helped Kahneman win the Nobel Prize

The idea is that a reference class of past, similar projects is used and studied, taking an outside view helps avoid the optimism bias of those designing a scheme, as those designing it are understandably biased to stress its benefits.

In America it is now officially endorsed by the APA.

“APA encourages planners to use reference class forecasting in addition to traditional methods as a way to improve accuracy. The reference class forecasting method is beneficial for non-routine projects … Planners should never rely solely on civil engineering technology as a way to generate project forecasts” (the American Planning Association 2005).”

It has been used in the uk to estimate the true benefits of the proposed Edinburgh Tram.

It could be used far more, for example to estimate the true infrastructure costs, and true time to completion for different housebuilders in different areas, in looking at the deliverability and phasing of major housing sites.

JK Rowling Zaps Possible Planning Objection – knock down their House

Although she lives in Belmont Drive, Murrayfield, in a conservation area, called the ‘Poshest Street in Scotland’, and the house being demolished is a horrible 1970s backland unit though.

Reminded me of a street nearby and the self described friends from Uni who came from it – the Ravelston Dykes.

Steve Jobs at a Planning Committee

Seriously, last night; even Apple needs planning permission, but a campus for 12,000 people is one major planning application.

“Apple’s grown like a weed and as you know, Apple’s always been in Cupertino”

 

Some good pointers here of how to get local politicians in the palm of your hands.

Note not a single bullet point in his keynote.

Makes the perfect point about why financial matters should be a material consideration.

‘What will advantages will you bring to the people of Cupertino’

‘We are your largest single taxpayers’

Some failed punts for planning gain – free ipads and wifi – no way.

 

Steve Keen – ‘It is not people that buy housing but people with credit’

Excellent video of Steve Keens latest thinking and housing booms, and busts, by one of the finest economists, and one of the few to predict the downturn here

‘We’ve turned capitalism into a kleptocracy. It should get back to being capitalism again.’

But the first few slides on population are flaky – no it is not people with credit it is households with credit, the graphs of population need not track house prices, a new born baby wont enter the housing market place for at least 18 years.

As such I think he underestimates the contribution of supply issues to housing booms – the George/Hoyt thesis of in-elasticity of land as a factor of production during economic growth seems just as important to me as a Minsky/Fisher based view of credit expansion. Without a supply shortage why would an entrepreneur not see a false arbitrage opportunity from land/housing speculation? Ponzi investors may only have bounded rationality but they are not crazy.

Ill try to outline a cohort/household formation based model to plug into economic models on here in the next few weeks.

Given the centrality of housing markets to bubbles we wont get very far if we dont properly model household formation and changes to the housing stock.

Self Build Housing – what’s the real barrier?

The Housing Minister Grant Shapps has a real passion for self-build housing.

He rightly points out that if added together it would be Britain’s largest single house-builder, and in launching a review of barriers he is keen to make it more than the preserve of the privileged few.

But what is the barrier?

Self building on anything other than a single plot has tended to be rare in the uk, although it is more common in Wales and Scotland, (though some developers went bust in the recession), and in some new towns such as Glenrothes.

If you are a developer paying for site and services up front then you want to minimise your exposure to development financing through getting developed land sold as quickly as possible. Seeing a show home and other housing attracts a premium from off plan housing as the buyer is not taking a risk that the site wont be serviced and built. Hence there is an incentive not to self build when large areas are all granted permission at once – under the uk planning system.

As a result self builders are pushed to the margins – and often have to brave and fight planning policies for the countryside etc. This builds up the false Grand Designs view of heroic self builders fighting planning officers – much as we love this property porn.

On the continent self build is much more common as often whole estates are built this way. This is partly because they have a zoning and subdivision system, partly because often local authorities lay out services then charge the eventual landholder (much more rational as it enables it to be project planned across infrastructure providers), and sometimes because tax systems do not come down hard on land value gains until smaller plots are improved.

Without scrapping our planning and housing tax systems and substituting a Danish or German model this would be hard to achieve in the UK. But it is worth trying, it may be possible to divise an end to end planning, infrastructure and taxation model that could work here. The British way of producing a report with 100 recommendations to be implemented by 150 bodies isnt going to make much headway.

See also building design, and on the example of Almere New Town in the Netherlands.

 

Decision Theory for Planners #103 How to get an Elephant through a Keyhole

I compare getting a development plan adopted as like trying to fit an elephant through a keyhole.

Exactly how do you get an elephant through a keyhole?

The answer is easy when you think laterally, get a bigger keyhole. Its easier than shrinking the elephant.

What is preventing the elephant from fitting through the keyhole

‘The elephant is causing a blockage’

Why is there a blockage?

‘The elephant is large’.

Now you can do nothing about the size of an elephant, you can change a hole.

I use this example for two reasons. Firstly its an example of a process requiring a project plan to complete – and what tends to cause delay in project plans is blockages. Ill return to this concept in the next lecture though.

The second reason is because it is an example of spatial-temporal thinking – lets just say spatial thinking for short.

Spatial thinking is the key skill for a planner – and not all planners have it.

Ill give you an example. I was advising one authority where the boss had a very very poor opinion of their housing policy bod. I was talking to them about the problems of one market town, and it became apparent that the key issue was everything you wanted in the town centre would not fit, and hence lots of previous projects had failed because of lack of viability. Talking it through with him it became obvious that something had to give – and so the shibboleth of whether a poor quality open space dominating the centre- in area but not in character, had to be moved/partially developed.

He went to an event organised by the local town council (not the District) where people were split into teams, some led by architects, my colleagues teams ideas were voted the best by the town council and won a prize.

A few days later I pinned up on the wall the front page of the local newspaper showing my friend brandishing a cup. The look of the manager was the look of death.

Despite not having good verbal skills their spatial thinking skills were outstanding.

Spatial thinking is a creative process but it is not about creating something from nothing, it is often about unlocking a solution which is imminant in a place, which any one of a number of people can unlock, including a local community if given half the support and chance.

People think in different ways. Some have skills in verbal thinking, some in logical, some in spatial. Each of these ways of thinking requires different parts of the brain. We need all kinds of people, all kinds of brains.

About a third of people think spatially, about the same proportion of the population that can read a map, surely no coincidence. A much smaller proportion use ‘picture thinking’ laying out ideas in the form of pictures. Famous and well documented examples of picture thinkers were Albert Einstein and Winston Churchill.

Spatial thinking is not quite the same as spatial-temporal awareness, it can also be used abstractly logical thinkers may use it to thinking symbollically in terms of logical connections. Verbal thinkers to think in terms of metre and rhyme. Creativity often turns out to come from linking different parts of the brain to spatial thinking.

We have a term for overdeveloping spatial, logical or verbal reasoning to the extent of the others – autism. It is no coincidence that those with strong spatial thinking skills are often seen as lying somewhere on the autistic spectrum. One group is the Netherlands is trying to change attitudes and understanding of spatial thinkers.

Think about the ideas of Dr Temple Grandin ‘The Woman who thinks like a Cow’ – who has transformed thinking on animal welfare by realising that the way we experience our environment as human beings is not universal.

 

Consider too the experience of the thinker I wrote about yesterday. Giancarlo De Carlo. He first lit up the spatial parts of his brain when he was a very small child seeing a dog with unusually long legs on his stair. He realised then that proportions did not have to be as they are, he mapped himself onto the walls and imagined himself taller and shorter, and the walls and floors mapped back again. He understood his place in the universe and how to shape it.

Another example, my freind Mike Hayes had a problem when Chief Executive at Watford, both Watford Football club and the local hospital wanted to expand. If you know vicarage road you know what a keyhole it is. His solution was simple, lock them in a room together (metaphorically) and sort each others problems out.

So there you have it the way to get through that keyhole is to think like a mouse, a very big frustrated mouse with a hacksaw.

Ed embarressing at PMQs Again

When will he learn to think on his feet, Cameron ate him for breakfast. Who is briefing him?

More wispers, few defenders.

National Planning Policy Framework Forensics #8 Housing Objectives

Ill now turn to the topic specific sections. These are set out in the NPPF in terms of land use requirements to be anticipated in development plans.

Each local planning authority should ensure that the Local Plan is based on adequate, up-to-date and relevant evidence about the economic, social and environmental characteristics and prospects of the area. Local planning authorities should ensure that their assessment of and strategies for housing, employment and other uses are integrated and that they take full account of relevant market and economic signals such as land prices.

Curiously the term ‘proportionate’ used earlier is not used.

Compare PPS12

Evidence gathered should be proportionate to the job being undertaken by the plan, relevant to the place in question and as up-to-date as practical having regard to what may have changed since the evidence was collected.

The up to date ‘as practical’ is a key qualifier, as is ‘relevent to place’.

Onto housing, comparing with PPS3, including the proposed change to the definition of affordable housing and the implementation of the change to the definition of previously developed land.

The Government’s key housing policy goal is to ensure that everyone has the opportunity of living in a decent home, which they can afford, in a community where they want to live. (pps3 para 9)

This comes of course from the Housing Green Paper ‘Homes for the Future’

PPS3 had a number of second tier housing objectives in para 10:

• High quality housing that is well-designed and built to a high standard.
•  A mix of housing, both market and affordable, particularly in terms of tenure and price, to support a wide variety of households in all areas, both urban and rural.
•  A sufficient quantity of housing taking into account need and demand and seeking to improve choice.
• Housing developments in suitable locations, which offer a good range of community facilities and with good access to jobs, key services and infrastructure.
• A flexible, responsive supply of land – managed in a way that makes efficient and effective use of land, including re-use of previously-developed land, where appropriate.

Compare the objectives from the NPPF

The Government’s key housing objective is to significantly increase the delivery of new homes. Everyone should have the opportunity to live in high quality, well designed homes, which they can afford, in a community where they want to live. To achieve this objective, the Government is seeking to:
• significantly increase the supply of housing;
• deliver a wide choice of high quality homes that people want and need;
• widen opportunities for home ownership; and
• create sustainable, inclusive and mixed communities in all areas, including through the regeneration and renewal of areas of poor housing.

Surprisingly the headline objective is almost exactly the same.  The only shifts in the text is deletion of the word ‘decent’, so presumably decent homes are not an objective; and the emphasis on increasingly supply, in the previous sentence.  A sentence im sure Gorden Brown would have added had he thought of it.

The ‘significantly increase the supply’ is critical though in terms of from what to what. Lets say a development plan is at pre-submission stage. Lets say they cannot demonstrate a significant increase in supply from the existing development plan (including the RSS). Should then the SoS issue one of his new Certificates of Conformity. Lets say the SoS declines to – if so the submitted plan is unlikely to be found unsound on this issue. Therefore housebuilders will be watching these certificate of conformity reports, and the justification in them, like hawks. If the SoS issues a Certificate of Conformity contrary to his own policy – of significantly increasing the supply of housing.

Should the measure of increase be a years out of date existing plan when the 2008 based 2010 issued household projections show more – what is the baseline for increase.

For example lets take Cornwall. Does it judge it can have a bit more than the old local plans and structure plans added up but a bit less than the HH projections?

Lets say it picked a figure in between, the certificate issued and their was a JR.

A defence to that would be if the SoS could demonstrate that their would be housing elsewhere to make it up – although that would be hard to justify in a peninsula that comprises its won housing market. Where is this housing to be Devon, Somerset, Bath, Bristol, where housing targets are falling every week?

Does the need for growth trump localism here?

Pickles has therefore set himself a huge beartrap. If you are increasing housing supply well – wheres the beef?

In the meantime it would be very unwise following royal assent and adoption of the NPPF to submit an development plan which showed a decrease in housing compared to the sub-national breakdown of the 2010 household projections. I fear again local planning authorities will sit on their hands and not publish revised housing figures until the matter is clarified.

The ‘increase in housing supply’ should be explained in a footnote for clarity e.g.‘The government defines an increase in housing supply as that at least sufficient to meet the increase in number of allocated dwellings in a housing market area as identified in a Strategic Housing Market Assessment, based on the 2008 based household projections (sub-national breakdown), or any subsequent replacement.’

The affordability objective has been watered down and a widening home ownership objective added in. So should home ownership be widened irrespective of affordability – is the government pro-sub-prime?

The two need to go together to make sense.

You will note of course that re-use of previously developed land for housing would no longer be a priority. I will deal with this in a subsequent post looking at the management of housing supply.

French bank anticipating a run – Triggers wide rumours across Internet

France is alive with self feeding rumors that its banks are expereincing liquidity problems and expecting a run- see here and here.

Larger depositers are limited in the weekly amount they can withdraw whatever their balance. The amount has just been halved by La Banque Postale leading to many rumors.

Traditionally reducing the withdrawl cap is indication of cash on hand scarcity.

The bank in an email to customers this is a security measure to protect their customers better. Have they been hacked then? Hardly a measure to assure customers of the security of their deposits. And why over a 7 day period – if it was hacking they could contact customers over this period.

Are wealthy depositors withdrawing because of concerns about exposure to Greek Debts? They can borrow at 0% from the central bank if it were a temporary issue, but not if the problem were deeper.

The problem might lie in the banks balance sheet but more likely in a sudden rise in preference for cash in hand by French consumers. If this is so it is very bad news as it we all know the impact of a liquidity shock.

La Banque Postal boasts of a very liquid balance sheet – but so do all banks that go belly up.

The problem is that if the internet rumours spread to the cafes then it could be self-fulfilling and systemic across European exposed banks.

If these banks have to be bailed out anyway across Europe Greece might decide they have nothing to lose by pulling out of the euro with the default this implies.

House Price Myths #3 ‘87% of the housing shortfall is caused by immigration’

This figure comes from a migration watch study in 2007. The Impact of Immigration on Housing

The report says ‘much of the planned building on greenfield sites would be rendered unnecessary because a much greater proportion of new housing could be built on brownfield sites.’ This figure is repeated by cllrs up and down the country. The assumption being that lets sit on our hands until the ‘government gets a grip’ on immigration and then we wont have to do anything.

The report is a masterpiece of bad statistics and distortion of evidence.

What they did was take the housing shortfall from the Barker Report, subtract the net international in-migration and then state that immigration accounted for 87% of that.

What is wrong with that?

Well the errors are legion. For starters they only looked at overall migration, what matters for household formation, the driver of housing demand, is long term migration. That is those that live here for a number of years and enter the housing/market system. Most visitors are short stay and according to the official ONS model, even accounting for over-stayers, less than half of net international migration translates into household formation.

Also migration watch was guilty of a double fallacy of composition and of hidden false assumption. The first false hidden assumption of migration watch is that whenever a house comes available it is taken by a newly formed household. This isn’t true it is taken by the general population some of which are newly formed households. The second hidden assumption is that of the newly formed households immigrants are always ‘first in the queue’ even in open competitive housing markets. The old racist first in the queue argument again.

This leads to a fallacy of composition because you could take any of the components of increased household growth and by adding up in this way produce a nonsense result. For natural population has around 3/5ths more impact on household formation than immigration. A headline of ‘Baby boom and older people accounts for 145% the housing shortage – eunthenise and sterilise’ would be laughed out of court – yet that is the same logic of thought used by migration watch.

The correct method is to use sensitivity testing and tease out the contribution of long term net international migration to household formation. The governments ONS use this – but then they use professional statisticians not those who failed key stage 4 at maths.

The latest figures – released November 2010 shows that to 2030 the contribution due to immigration is 36%, not 87%. The table at the top of the post shows this testing.

This is not an inconsiderable number – but it is unrealistic to assume that immigration could ever be ‘net zero’ as this sensitivity test posits. Take Germany, if it were not for its immigration its aging population would be shrinking dramatically. In the western world with aging and an increasing ‘dependency ratio’ unless there is some combination of greater births, greater emigration of the elderly or greater immigration of the young they face a severe problem of fewer and fewer taxpayers funding larger and larger number of non taxpayers.

The impact of the changes to immigration rules are hard to model are there is only a vague ‘target’ overall and not even in the coalition agreement. Also the ’10s of thousands’ figure is for overall immigration and not long term immigration. If we take the ‘low’ in-migration assumption of the ONS as the starting point and assuming it models a ‘successful crackdown’ then household formation will have been reduced by all of 15%.

This is not the whole story of course in that immigrants have different fertility rates. A factor not included in the Migration Watch report. However assuming no drastic policies such as repatriation this has no impact on household formation rates until 2029, when those born today will be entering the housing market. So It has no impact on 15 year development plan targets for housing.

Now migration watch might correctly argue that this is only looking at supply side and not demand. Correct but what is needed is a proper stock and flow model. Housing land stock is falling, dramatically since the proposed abolition of regional spatial strategies. We are building around 150,000 houses a year when we need to build around 260,000 houses a year to meet household formation rates. Each year we are building up an addition to the backlog of over 100,000 houses a year. As the household formation in that backlog is predominantly comprised of non-immigrants that means that the proportion of new housing required by immigrants is falling not-rising.

Even if we were to assume 15% less housing need through tighter immigration control this would be more than wiped out by the 58% shortfall in housebuilding this year.  There is no excuse for not allocating more land – even if you are a national front councillor heaven forbid.

Migration Watch should do the honest thing and take the report off their website and replace it with a robust one by a professional and specialist researcher.