Information Processing Behavior and Estimating Accuracy in Operations Management

Author(s): John R. Adams and Lloyd A. Swanson

Source: The Academy of Management Journal, Vol. 19, No. 1 (Mar., 1976), pp. 98-110
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/255450
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Information Processing Behavior
and Estimating Accuracy
in Operations Management
JOHN R. ADAMS
United States Air Force

LLOYD A. SWANSON
Syracuse University

The estimation process was investigated to determine

what personal and situational factors influence the ac-
curacy of estimates in an operational environment. The
primary conclusion is that in spite of outside uncon-
trollable variables, the accuracy of estimates is largely de-
termined by factors which are controllable by the esti-
mator and by management.

The decision maker in the production/operations manag

must deal with future events. He must therefore estimat
outcomes of his actions in terms of future events and make his decisions
based on these estimates. The estimating procedure may be subjective i
nature, or it may use quantitative techniques to extrapolate from historica
data. The manager may be designing a production process, evaluating h
quality control efforts for future periods, scheduling work through a
shop, or developing an inventory control system. In any case, the primary
ingredient in making "correct" decisions must be the manager's accura
in estimating future events. His ability in this key area may well determin
both his skill and reputation as a manager and the success of his produ
or service.
Despite the importance of this key ingredient, little is known of the
factors that may affect estimating accuracy. The literature deals with
obtaining accurate estimates from subordinates, a subject which is discussed
in a strictly prescriptive manner. The results are such platitudes as "a
manager should not arbitrarily alter an estimate made by a subordinate,"
or "the manager responsible for an activity should provide the estimates
concerning it." Such statements generally are unsupported by research and
John R. Adams is Assistant Professor, Graduate Education Division, School of Systems
and Logistics, Wright-Patterson Air Force Base, Ohio.
Lloyd A. Swanson is Associate Professor, Operations Management and Management
Science, School of Management, Syracuse University, Syracuse, New York.

98

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1976 Volume 19, Number I 99

indicate a lack of knowledge concerning the behavioral and situational

factors associated with developing accurate estimates on which to base an
operational plan.
The estimate itself has been described as the manager's experience re-
flected in a numerical guess (Archibald and Villoria, 1967, p. 87). If this
view is accepted, there would appear to be three major factors which might
logically affect the accuracy of an individual operating manager's estimates.
First, the importance of the estimate as perceived by the manager should
determine his motivation and the amount of effort he is willing to expend
in the search for accuracy. This perception is almost certain to be affected
by a variety of job-related conditions in the operating environment. Second,
certain managers may exhibit characteristics which help them develop ac-
curate estimates. Such managers generally become recognized as suc-
cessful and may be referred to as "talented." Third, the information which
is sought provides the historical data base which may be extrapolated to
predict future events. The amount and type of information collected and
the manner in which it is processed may limit the possible accuracy of
predictions. If these three factors can be clearly defined and shown to be
related to accuracy, it may prove possible to design future organizational
environments calculated to yield more accurate, and hence more effective,
predictions.
Research designed to identify and define these factors should be per-
formed in an environment which clearly demonstrates several character-
istics. First, a relatively large number of estimators are needed to allow a
clear distinction between the information gathering process, the various
personality characteristics of the estimators, and the environmental or
motivational factors which impinge on the estimating process. Further,
each estimator should have made several estimates so that the impacts of
influences beyond his control are minimized. Ideally, such research should
span several functional entities to minimize organizational biases. Thus,
research is needed to examine the behavioral aspects of the estimating
process; that is, to determine what personal and situational factors are
associated with accurate estimates, and what managers tend to produce
them. This paper reports on research designed to isolate these estimating-
related factors in an ongoing operational environment.

RELEVANT RESEARCH

A search of the literature failed to reveal research speci

behavioral variables to the motivation for accurate estimat
classic works of Maslow (1970) and Herzberg (1970) ca
identify general motivating factors. Lawler (1971), buildin
work of Vroom (1964), has developed an excellent exp
relating an individual's abilities, his perception of how to acco
and the effort he expends on the task to his job performance.
be applied to the estimating situation as an overview of t

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100 Academy of Management Journal March

involved. In particular, it identifies job performance as dependent on the

individual's problem solving approach, which, in the case of developing
accurate estimates, must be determined by the type and amount of informa-
tion sought and processed by the estimator.
More specific research has been performed on the motivation of pro-
fessionals and managers. Both McClelland (1969) and Kahn (1964) have
reported that managers and business executives appear particularly driven
by a high need for achievement. Meyers' work (1964) indicates that man-
agers improve their performance most when specific goals are established.
Hall and Lawler (1970) have demonstrated that pressures for quality (a
professional concern) and financial responsibility (an organizational con-
cern) are both related to organizational performance where professionals
are concerned. These findings lend credence to the Lawler model as a
description of the relationship between managerial motivation and per-
formance.
Work specifically related to developing accurate estimates has been
generally confined to the problem of obtaining time estimates for network
analysis applications. Ferguson and Swift (1973) found that the Program
Evaluation and Review Technique (PERT), which uses three time estimates
for each activity to define a distribution of possible activity durations,
yields more accurate estimates than the Critical Path Method (CPM),
which uses only a single time estimate per activity. The explanation posed
was that the "psychological cover" afforded the estimator by not being
forced to commit himself to a single, fixed estimate might make him willing
to include less "pad" or safety factor in his estimates. An alternative explana-
tion may be that the additional study required to provide three independent
estimates may well increase the manager's knowledge sufficiently to explain
the improvement.
The existence of a learning curve, indicating that estimates improve as
the manager gains estimating experience, has been investigated with con-
flicting results. King and various associates (King and Talmadge, 1967;
King, Wittevrongel, and Hezel, 1967) have reported in several articles that
no such curve exists, and this conclusion is supported by Kidd and Morgan
(1969). Abernathy (1971), on the other hand, reports finding a pro-
nounced curve. This conflict may be due to the different measures of
accuracy used by the researchers.
The combined results of these studies imply that a manager's performance
is affected by personal and environmental factors, but they fall far short of
identifying what factors lead to accurate estimates or even if estimating ac-
curacy is within the control of the estimator.

A MODEL OF THE ESTIMATING PROCESS

A study was designed to investigate several of these factors

if relationships exist between them and the accuracy achiev
of estimators/managers. The existence of such relationship

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1976 Volume 19, Number 1 101

that estimating accuracy is controllable to some extent, a fact which would

prove invaluable to organizations highly dependent on accuracy for their
continued success in a competitive environment.
A project management setting was chosen for the study because it most
nearly exemplified the characteristics described earlier. Specifically, a large
number of estimators representing independent functional organizations
typically contribute a number of estimates to the network analysis systems
used as planning and control devices. These estimators are subject to differ-
ing environmental influences and are generally free to determine what
information they will gather and how that information will be used in
developing their estimates. In addition, the network systems used in this
specialized form of management make the individual estimates and actual
accomplishments clearly visible and relatively easy to obtain in quantitative
form.
The specific hypotheses were:
Hypothesis 1: The accuracy of a manager's estimates is positively re-
lated to the amount of information sought and processed.
Hypothesis 2: The level of managerial talent possessed by a manager
is positively related to the amount of information sought and proc-
essed.
Hypothesis 3: A manager's perceived importance of accurate estimates
is positively related to the amount of information sought and processed.
Hypothesis 4: The level of managerial talent possessed by a manager is
positively related to his perceived importance of accurate estimates.

Figure 1 graphically demonstrates the relationships hypothesized above

and also allows the impact of uncontrollable factors on the accuracy of

FIGURE 1

Model of the Significant Relationships "

Uncontrollable |
External Factors
I . . _
I Data
Concerning
the Activity ._..
teAtt 1 = .998 _ Accuracy
[ I 2- .999 ., " of the
I I 3- .979, Estimate
I I _Information Sough
I - and Processed I tionships
I t I('999) T(.997) but not testable
L_L jPerceived ImportanceL In^.r T,,,1
__'Perceived--lAn

a The significance (1 - a) levels achieved for significant r

parentheses.

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102 Academy of Management Journal March

estimates to be expressed. In essence, the model indicates that managerial

talent, both directly and in combination with the estimator's perceived im-
portance of accuracy, influences the gathering and processing of available
information to affect estimating accuracy.

Method

The project selected for study was typical of many major, advanced
product development efforts conducted jointly by government agencies and
private corporations. Its purpose was to apply modern aerospace technology
to the consumer market, an effort which included designing new electronic
equipment for installation in both aircraft and ground facilities, developing
and testing new aircraft control regulations, performing market researc
studies, determining both customer and general citizen reactions to a new
service, and constructing the necessary facilities. Individuals from each o
the three government and six private organizations which were princip
participants in the project contributed to this study.
The sample consisted of those managers who had provided initial esti-
mates of activity durations to the project's network analysis system. Thirty
individuals, representing 94 percent of all the estimators on the project
were studied in depth using interviews, survey responses, and an analysis of
the network records (the remaining 6 percent had left their jobs and were
unavailable for study). Data from the surveys and records were analyzed
using correlation analysis, while the interview data proved invaluable fo
interpreting and confirming/qualifying the statistical results.

Variables

Accuracy of the Estimates-This variable represents the calculated

error in a manager's initial estimate of an activity's duration when compared
to its actual duration. Each manager's error was averaged over four activi-
ties to minimize the effect of such uncontrollable variables as strikes and
weather.

Managerial Talent-Managerial talent represents the sum of scores f

nine personality characteristics, categorized as abilities, personality trai
and motivational traits, which have been shown by Ghiselli (1971) to
highly correlated with managerial success (see Table 1).
Perceived Importance of Accurate Estimates-This variable represent
the extent to which the manager perceives the accuracy of his estimates to
be important to the organization, to his career, and to himself as an in
dividual (see Table 2).
Information Sought and Processed-This variable represents a collection
of indicators which measure the amount and type of technical and human
information collected, the methods employed in analyzing that information,
and the experience of the estimator (see Table 3).

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1976 Volume 19, Number I 103

TABLE 1

Personality Measures of Managerial Talenta

Classification Measure Definition b
Supervisory The capacity to direct the work
ability and to integrate their activities so that the goal of
Measures of the work groups can be attained.
ability Intelligence A rough measure of general intelligence.
Initiative Capacity to begin action, to act independently, and to see
courses of action not readily apparent to others.
Self-assurance Extent to which an individual perceives himself to be
effective in dealing with the problems that confront
Measures of him.
personality Decisiveness Willingn
traits the quality of the decision).
Working class The degree to which a person
affinity and understanding of the "men in the shop": the extent
to which he is likely to be accepted or rejected by
those in the working class as a suitable person to be
associated with.
Achievement Level of occupational attainment the individual seems
Measures of motivation to be striving for.
motivational Self- An indication of the extent to which the individual needs
traits actualization and wants to use his talents to the fullest.
Security The need to be protected from adverse conditions or
circumstances, especially in the work environment.
a The sum of these scores is defined as indicating the degree of managerial talent.
b All definitions were derived from Ghiselli (1971).

Data Collection Methods

The manager's estimating accuracy was calculated on the basis of d

collected directly from the project's official network records. The complet
activities estimated by each manager were identified first. Data were c

TABLE 2
Construct of the Variable
"Perceived Importance of Accuracy"
Types of Data Rated by
Primary Variable Principal Component the Respondents
To the individual Professional pride
Respect from others
Job satisfaction
Individual goals
"Extra" work performed
Job pressure
Perceived importance To his career Portion of the job
of accuracy Effect on promotion
Effect on income
Effect on job security
Effect on value as an employee
Effect on ability to hold job
To the organization Project organization
Parent organization
Planning with PERT/CPM
Level of managerial concern
Extra resources expended to meet
schedule

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104 Academy of Management Journal March

TABLE 3
Construct of the Variable
"Information Sought and Processed"

Primary Principal Types of Data Rated by

Variable Component the Respondents
Technical Knowledge of PERT/CPM
Value of engineering data
Value of administrative data
Value of operational data
Value of logistics data
Information Human Reliance on other people
sought and Knowledge of other peoples' attitudes and experience
processed Knowledge of worker's competence
Methods Use of formal conferences
Use of informal work sessions
Use of direct coordination
Use of telephone/written messages
Use of computer, PERT, CPM
Search for accurate data and added sources

Experience With general and project management

With PERT/CPM
With formal and informal procedures
Dealing with outside organizations

lected on four randomly selected estimates for each manager and aver
to obtain accuracy measures. Accuracy has several aspects, any one o
which may be critical at different times. The absolute error in terms of
may be critcial at one time, for example, and the percent of error in anoth
Therefore, three accuracy indices were calculated, each highlighting
of these aspects.

Accuracy Index 1: The simple ratio of the estimated to the actual dur
tion (estimated duration/actual duration).
Accuracy Index 2: The percent error in the estimate
1 estimated duration X 100
actual duration
Accuracy Index 3: The total number of days error
(estimated duration - actual duration).
The initial contact with members of the sample consisted of a formal
interview designed to provide an insight into the formal and informal or
ganizational and personal relationships that existed within the project. A
the end of each interview, the subject was asked to complete a two-part
survey.
Part 1 of the survey consisted of Ghiselli's "Self-Description Inventory,"
originally developed as a measure of personality characteristics which
Ghiselli (1971) analyzed for their relation to managerial success. Nine o
these are summed to provide a measure of the degree of managerial talent.
These nine characteristics are listed and defined in Table 1, and their
validity is demonstrated in Ghiselli's work.

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 1976 Volume 19, Number 1 105

Part 2 was developed specifically for this study and was designed to
measure the manager's perceived importance of accurate estimates and the
information sought and processed as he developed the estimate. The con-
structs of these two variables are presented in Tables 2 and 3, respectively.
In each case, the manager was asked to rate on a scale from one to six his
view of the importance of several job-related factors. The tables summarize
the subjects included. The individual's score was the sum of his ratings,
yielding a scale that is relative among the sample.

Statistical Techniques

The initial statistical effort was to validate the two scales designed for
this study. Seventeen validity checks were included in Part 2, consisting
essentially of asking similar but differently worded questions at different
points in the survey. Fourteen of these showed correlations above the .95
significance (1 - a) level, while none were correlated below the .89 signifi-
cance level. These results indicate that little bias exists due to question
wording or location. The responses to each individual question were ex-
amined next. Each demonstrated a decided central tendency, and the data
in general tended to support both the expected results and the interview
data.
Simple product-moment bivariate correlations were used to test the
hypothesized relationships. Except as specifically noted otherwise, relation-
ships with significance (1 - a) levels below .95 are reported as not signifi-
cant (NS).

RESULTS AND ANALYSIS

The correlation matrix of results is presented in Table 4, wh

contains a model of the significant relationships. The e
summarized in Table 5.
The use of three accuracy indices provides a much more complete pict

TABLE 4

Simple Pearson Correlation Coefficients and Significance (1

Between the Major Study Variables

Perceived Information Accuracy Indices

Importance Sought and
of Accuracy Processed 1 2 3
Managerial 0.405 0.534 -0.388 -0.223 -0.383
Talent (.978) (.997) (.969) (.852) (.967)
Perceived Impor- 0.661 -0.234 -0.405 -0.318
tance of Accuracy -(.999) (.875) (.980) (.943)
Information Sought -0.551 -0.679 -0.410
and Processed (.998) (.999) (.979)
Accuracy Index 1 0.642 0.703
(.999) (.999)
Accuracy Index 2 0.406
(.980

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106 Academy of Management Journal March

TABLE 5

Summary of Results

Hypoth- Signif-
esized Existing icance
Hypoth- Rela- Rela- (1 - a)
esis Major Variables tionship tionship Level
1 Information sought Accuracy of the Positive Positive .998
and processed estimates .999
.979
2 Managerial talent Information sought Positive Positive .997
and processed
3 Perceived impor- Information sought Positive Positive .999
tance of accurate and procesesd
estimates
4 Managerial talent Perceived impor- Positive Positive .978
ance of accurate
estimates

of the errors inherent in the estimating process than could any single
measure. Accuracy Index 1 provides a measure of the overall tendency to
estimate high (ratio> 1) or low (ratio < 1) relative to the actual duration.
Accuracy Index 2 provides a measure of overall accuracy, ignoring the
distinction between positive (long estimate) and negative (short estimate)
errors. Accuracy Index 3 represents the error in total number of days,
allowing the relative durations of the activities themselves to influence
the results. Note the high correlations among these indices (Table 4). Since
they actually measure errors, negative correlations represent relationships
with accuracy. The results theorized in Hypothesis 1 must thus reflect a
composite of these three indices.
The results of the statistical analysis show that accuracy is associated
with the information sought and processed, regardless of the accuracy index
considered. Hypothesis 1 is supported.
Analysis of the data indicates that the more accurate estimators ap-
parently have more confidence in their ability to estimate, for not only do
they estimate more precisely (Accuracy Index 2), they also tend to under-
estimate slightly (Accuracy Index 1). Apparently those who develop the
greatest information base relative to the activity being estimated use the
smallest contingency factor or "pad" in their estimate (some said they used
no contingency factor at all). In the interviews, many respondents ex-
pressed doubts that this hypothesis would result in any significant relation-
ship because of the many outside, uncontrollable factors each felt impacted
the actual duration of an activity. While each respondent indicated that
such a relationship should exist, the individual invariably indicated some
delayed political decision, an extended strike, a period of bad weather, an
unexpected technical problem, or some other reason why his particular
estimate might not be accurate. Yet the amazing result of this analysis
is that over 65 percent of the variation in accuracy is explained by the
amount of information sought and processed, despite the admittedly large

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1976 Volume 19, Number I 107

number of uncontrollable factors impacting this and most other projects.

The important conclusion to be drawn from this analysis is that the uncon-
trollable factors have a much smaller impact on accuracy than is generally
believed. The implication is that estimating accuracy can be largely con-
trolled by the estimators in an operating environment.
The statistical analysis shows that the information sought and processed
is associated with Ghiselli's definition of managerial talent. Hypothesis 2
is supported.
All members of this sample held responsible managerial positions within
their own functional organizations and were therefore expected to possess
a certain minimum level of managerial talent. Above this minimum, how-
ever, extensive variation was noted in the measure. A more detailed an-
alysis indicates that six of the nine components of managerial talent are
significantly related to the information sought and processed (see Table 6).
Note that one of these, security, is negatively correlated, as predicted by
Ghiselli. The remaining three components also demonstrate reasonably
high simple correlations. A step-wise regression analysis indicates that only
two components, initiative and decisiveness, are significant in explaining
this hypothesis. However, 45 percent of the variation is explained. While the
existing covariation rules out any conclusion about the most important
components, initiative and decisiveness are logical driving characteristics
for distinguishing those estimators who will strive for the greater amount
of information in developing their estimates. The conclusion to be drawn
from this analysis is that a high level of association does exist between
managerial talent, as defined by Ghiselli, and the amount of information
sought and processed.
The statistical analysis shows a strong relationship between a manager's
perceived importance of accurate estimates and the amount of information
sought and processed. Hypothesis 3 is supported.
A more detailed analysis involved calculating a correlation matrix for
the principal components of each of these two variables (see Tables 2 and

TABLE 6

Simple Correlation Coefficients and Significance (1 - a) Lev

of the Components of "Managerial Talent" vs. "Information
Sought and Processed" and "Perceived Importance of Accurac
Information Perceived
Components of Managerial Talent Sought Importance
Supervisory ability 0.4471 (.987) 0.3091 (.934)
Achievement motivation 0.4703 (.991) 0.4121 (.980)
Intelligence 0.2804 (.913) 0.1592 (.776)
Self-actualization 0.0816 (.651) -0.0531 (.600)
Self-assurance 0.4826 (.993) 0.3181 (.939)
Decisiveness 0.5077 (.995) 0.3633 (.963)
Security -0.3847 (.971) -0.3725 (.967)
Working class affinity 0.1952 (.875) 0.1489 (.761)
Initiative 0.5596 (.998) 0.4952 (.994)

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108 Academy of Management Journal March

3). All correlation coefficients were significant (1 - a) above the .95 level
(except for one above the .90 level). This supports the existence of the
relationship between the primary variables. The interview data also sup-
port this relationship, with those members of the sample who believed that
accurate estimates were important to the project also tending to devote more
time and effort to developing their estimates. No pattern appears to exist
between the level of manager in the organization and the perceived im-
portance of accurate estimates.
The statistical analysis shows that the perceived importance of accurate
estimates is associated with Ghiselli's definition of managerial talent.
Hypothesis 4 is supported.
At a more detailed level, four of the nine components of managerial
talent are significantly (1 - a) related to the perceived importance of
accurate estimates (see Table 6). The remaining five components also
demonstrate reasonably high simple correlations. Initiative, decisiveness,
and the lack of a need for security are important to this relationship, as
they were in Hypothesis 2. In this case, however, supervisory ability is not
significant, while achievement motivation contributes strongly to the re-
sults. An analysis of the reward systems used by the nine organizations
studied indicated little recognition of the importance of accurate estimates.
Job security and promotion potential of consistently inaccurate estimators
were certainly reduced by their poor performance, but no formal system
existed for recognizing and rewarding accurate estimators. Further, none of
the managers knew factually how accurate their estimates were. Thus the
relationships between the components of managerial talent and the esti-
mator's perceived importance of accuracy may help explain why the
interview data clearly demonstrate that those who feel accuracy is im-
portant also strive to achieve accurate estimates, despite a formal organiza-
tional reward system that tends to provide only negative rewards to them.

SUMMARY AND CONCLUSIONS

In this study, the estimation process was investigated to determ

factors influence the accuracy of estimates in an operational envi
It was hypothesized that certain personality and situational factor
as certain aspects of an individual's decision methodology, affe
racy of his estimates. A model was developed to graphically demo
hypothesized relationships and to show the effect of uncontrollab
factors on these relationships. Data were then collected and
test the validity of the model.
The primary conclusion of this study is that the accuracy of an
is largely determined by the estimator himself. Without a dou
trollable outside variables, such as strikes, late decisions, weat
tions, and a wide variety of other influences affect the actual
activities and hence the accuracy of the estimates. The effec
perturbations on accuracy was stressed by every estimator in

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1976 Volume 19, Number I 109

Nevertheless, over 65 percent of the variation in accuracy was explained

by the amount of information sought and processed, a variable which in
turn was strongly influenced by the perceived importance of accuracy and
to a lesser extent by the level of managerial talent.
In the short term at least, managerial talent as defined in this study would
probably be relatively constant for a specific individual. This can be highly
beneficial to management, since the individual's perceived importance of
accuracy is usually much easier to influence than his personality char-
acteristics. Specifically, in the organizations studied, no formal feedback
system existed to inform the estimator after the fact about the accuracy of
his estimates. Providing this information, and differentially rewarding the
accurate estimators, would be consistent with Lawler's model of motivation
and would likely increase the estimator's perception of the importance of
estimating accurately. This study shows that such changes in the estimator's
environment could ultimately lead to an increase in estimating accuracy
for the organization as a whole. Indeed, the principal impact of this study is
to demonstrate that outside influences play a much smaller role in de-
termining the accuracy of estimates than was previously believed by
either the organizations or the estimators. Motivational and environmental
factors can be controlled by organizations and are likely to significantly
influence the accuracy of the estimates used as key planning ingredients in
operational systems.

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