Reference class forecasting

What is reference class forecasting (RCF)?

• Reference class forecasting is a method of predicting the future by
looking at similar past situations and their outcomes.
• The problem is that people always taking “inside view” and neglecting
“outside view”.
• 4 categories of explanations for the underestimation : technical,
economic, political and psychological.
Benefits of reference class forecasting
• Reduced cost overruns and optimized the cost
• Avoid the benefit shortfall
• Decreases the importance of the user’s inside view and internal
judgement.
Downfall of reference class forecasting
1. Subjectivity of reference classes
2. Acquisition of data
How to apply Reference class forecasting ?
1. Identifying relevant reference class
2. Establishing a probability distribution for the chosen class
3. Benchmarking the specific project to the reference class
distribution