Your CFO, after hearing from the head of a product line and the head of sales says the quarterly sales forecast of your widget is going to be significantly higher and several entities of your organization are swinging in to action. 3rd party suppliers are notified to be prepared for increased orders, inventory levels are increased, customer service hours are added to accommodate the pending customer calls based on increased sales volume. But all of these actions have financial ramifications. Overtime pay, increasing product output, and greater storage capacity for increased inventories all have costs.
If the forecasts were correct, the moves pay off. The company meets the demand. The stock price goes up. Everyone's a hero. But if they weren't, the company may have excess inventory, unhappy suppliers, and layoffs, not to mention missed revenue growth potential. Uh oh, now everyone's putting on their armor for the ensuing political battles.
Operational and financial forecasting are largely political games with various agendas driving those forecasts. Unfortunately this creates a fantasy world vs. reality and the organization suffers.
According to a Price Waterhouse Coopers "Barometer Survey" of 383 CEO's of privately held product and service companies identified in the media as the fastest growing U.S. businesses over the last five years, the most often used metrics companies tracked were:
Today organizations have an ever-growing reliance on data to generate forecasts of these metrics. Enterprise Resource Planning (ERP) and the Business Intelligence software business is booming with good reason. The ability to gather performance data about the business is providing new insights decision makers never had access to. Nevertheless, forecasts still regularly diverge from actuals and as we suggest above, poor or unrealistic forecasting can have real financial ramifications.
So where to turn?
What about the human element? CFO's and CEO's often rely on ad hoc communication across the organization to augment their forecasts. Now this intuition and experience inherent in the institutional knowledge of your organization that can't be captured in any amount of data analytics can be systematically captured in a prediction market.
Strategic planners always build milestones and performance metrics in to their plans as a way to check on incremental progress towards the ultimate strategic goals. The problem is the planners aren't the do'ers, and the milestones are often unrealistic given real world conditions. Completing this feedback loop, however so the strategy can be adjusted and expectation levels set is traditionally a difficult or outright broken process. Here are some recent questions asked by a financial services firm:
| Question | Prediction |
|---|---|
| Will all customer records from the legacy system be converted by December 1? | 91% |
| What will be the attrition rate of the acquired company in the first 6 months after acquisition? | Between 5% to 10% |
| Will the recently announced ATM features increase foot traffic to branches by at least 2%? | 18% |
A robust technology platform is only half the battle. You've likely never run a prediction marketplace before, so we help you ask the right questions, involve the right people, and provide the appropriate incentives. But most importantly, we help you understand how to incorporate the information you glean in to your ongoing strategic and operational planning processes. Specifically we help you accomplish:
Helping you be more proactive in reaching your strategic and operational performance metrics is where the business case for this solution is met. Each time you gain actionable information that helps you change course, you are in a better position to meet your strategic objectives which in most instances means increased revenue or cost savings.
