Deloitte, a global leader in financial advisory and risk management services, has a variety of resources for global executives, including a publication called CFO Insights. They recently published an article entitled, “Social analytics: Tapping prediction markets for foresight.” It’s an elegant summary of how a Chief Financial Officer can leverage prediction markets in the enterprise to gain foresight.

They start with a helpful description of prediction markets:

Prediction markets are online markets that build on the principle that markets serve to aggregate the beliefs of multiple traders to generate a forecast. For example, at any given time, a stock price is the aggregate collective belief of the traders of the company’s expected future earnings allocated to the share. Like the stock market serves to assign a price to the future estimated earnings of a stock, “prediction markets” assign a value to a belief about the future or a prediction.

The author of the article, Dr. Ajit Kambil, Global Research Director of Deloitte’s CFO program, quickly gets into how and why this concept can be of tremendous value to CFOs:

CFOs can use prediction markets to reduce uncertainty. Begin by considering the greatest areas of uncertainty that affect your organization. Is it the sales forecasts in a particular business segment? Is it the differences in sales across regions? Is it the cost of a critical resource such as oil? Is it the timely completion of a particular project? Is it uncertainly about whether a project will be within budget; and the variance if it is not?

More:

The first issue CFOs should consider is the value of resolv- ing a particular uncertainty. Can, for example, knowing the delay of a project enable cost savings or other benefits? Can having better sales forecasts enable the company to confidently pay down debt? Rank-ordering uncertainties that need to be resolved, based on the value of resolu- tion, identifies a priority list of potential prediction market applications.

Frankly, we’d encourage CFOs and even board members or other C-level executives to read the whole thing [PDF].

Dr. Kambil cautions:

The technology is easy and widely available. The design of a program with incentives, recruitment of participants, good forecasting questions, and alignment to a company’s culture may not be easy to achieve. While many prediction market vendors are probably too ready to sell you their market and technology as a solution, what is really important is their capacity to support the organizational acceptance of the technology.

We, of course, offer comprehensive services with our Foresight platform, as well as robust support.

Linda Rebrovick, our CEO, was happy to share her experience with Ajit as he prepared the article.

If you’d like us to share our experiences with prediction markets and foresight, just ask!