Dawn Keller, formerly with Best Buy, evaluates ROI of prediction markets and how business leaders need to consider the “cost of not doing” and “cost of alternatives” in this equation.

 Excerpt from Dawn Keller’s blog, The Answer is in the Crowd

From what I’ve seen in the marketplace (both first and second hand), Prediction Markets frequently face the same bottom line scrutiny as any other enterprise application, tool, or resource. How much value will it generate and when? Arguably, the business case should be extra tight when evaluating something new and unconventional. And prediction markets fit the bill. They are not yet widely adopted; they stem from newfangled trends such as crowd-sourcing; and most egregiously, they challenge traditional management orthodoxies.

 Here’s what companies often say:
This seems very promising, but I’m not sure it’s worth the cost.  What kind of returns can I expect?  What is the value of this new information?

Here’s the cost-benefit equation those comments imply:
Market value = market benefit - market cost
    or …
ROI = market benefit / market cost
   where …
        cost = price of Prediction Market solution + cost of internal time & resources
        benefit = value of the information (generated by the market)
Not to get hung up on the math, but these simple equations are missing at least three variables:

1. the cost of not doing
2. the cost of alternatives
3. the multiplying factor of the company’s management “skill”

The cost of not doing

Here, I’m simply flipping around one of the original questions.  Instead of only asking what is the cost of doing something, sophisticated leaders also evaluate the cost of not doing something.  In other words, what is the risk of passing on a particular opportunity, or ignoring a particular problem?  Those risks should be considered, and considered as costs.

Read more from Dawn’s blog on the ROI of prediction markets and how prediction markets can address your business needs.

Consensus Point is the leader in prediction markets, the social predictive analytics solution.

This entry was posted on Friday, October 30th, 2009 at 11:15 am and is filed under Front Page, News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.