OPTIMAL BUFFER SIZING IN PROJECT PORTFOLIOS UNDER MANAGERIAL OVERCONFIDENCE: EVIDENCE FROM GLOBAL ENGINEERING FIRMS

Abstract

The article focuses on exploring the nature of managerial overconfidence impact on the determination of buffers sizes in project portfolio of global engineering firms. The overconfident managers will make the most significant resources that are not necessary leading to poor resources and risk placement through their managers misplaced confidence which will ultimately affect the project success. The research involves a quantitative study that incorporates the survey of senior managers in multinational engineering firms. The study is concerned with the following two questions: Does managerial overconfidence relate to inefficiency in buffer sizing? What kind of effect does this have on the project portfolio performance? The sample size took 150 senior managers and regression analysis was used to study the correlation between managerial over-confidence and the buffer sizes and robustness checks were done to accommodate such other factors as organization culture and experience. The results indicate that the greater the buffer size, the more managerial overconfidence that existed which in turn yielded worse results in portfolio performance. Managers, who are overconfident, will spread more resources on the buffers that make the project less flexible at the later stages. Even though they think that they are the best at managing risk, their judgment can still result in inefficiencies. This paper shows the behavioral issues affecting project management and that firms should use training programs to reduce overconfidence biases during the decision-making process. A duration of six months was recorded to collect the data and the regression model showed that buffer sizes increased based on managerial overconfidence by 15 percent causing a 10 percent decrease in the performance of the portfolios.