Underestimation

Underestimation is the act of judging a quantity, outcome, or likelihood to be smaller than its actual value. It can apply to time, cost, risk, resources, or capabilities, and it often arises in planning, decision making, and evaluation. The term is commonly contrasted with overestimation.

Common causes include cognitive biases such as optimism bias and the planning fallacy, cognitive anchoring to initial estimates, the availability heuristic, and misinterpretation of historical data. Structural factors such as incentives, information gaps, and incomplete data can also lead to systematic underestimation.

In project management, underestimation of task duration or costs is well documented and can lead to schedule slips and budget overruns. In risk assessment, low-probability, high-impact events may be underestimated, increasing exposure. In skill assessment, people may underrate their competence, affecting training needs.

Underestimation can reduce preparedness, cause resource shortages, and distort decision making. It may also affect policy and economic forecasting by producing overly optimistic outcomes.

Mitigation strategies include reference-class forecasting, decomposing work into smaller tasks, adding contingency reserves, and peer reviews of estimates. Adopting standardized estimation processes and evaluating accuracy with metrics such as mean absolute error or calibration plots can help identify and correct underestimation over time.