Want Better Forecasts? Tie Your Key Stakeholder’s Performance Bonuses To Them!

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A recent article on CFO.com on imperfect futures, which discussed the great deal of uncertainty in today’s economy and how hard forecasting has become, contained a novel and often overlooked idea for creating more accurate forecasts (on average). See how much your people will bet on them!

Betting, often administered through on-line prediction markets, has famously foretold the results of recent elections and Super Bowl match-ups. and is now being used by some companies to try and create a window into their corporate futures. Some companies, like Ford, have achieved good results with the methodology in preliminary applications in NPD. (Perhaps Ford should have used the methodology more broadly, given the current state of the American automotive sector? But I digress.) Electronic Arts has used it to gauge future release popularity within 2%, four times as good as the usual results achieved from in-person polling.

But I’d take it one step further. I’d make it a key factor in the determination of the bonus of each key stakeholder (who should be coming together from the various business units in the creation of a consensus forecast which combines all of your organizational intelligence) — and penalize them for each percentage point the forecast is off, either-way. You’d get more cooperation that way, since no one would want someone else deciding their fate when they could do something about it. You’d also see more scenarios analyzed in the construction of the forecast, since it would take repeated iterations before you came to a majority agreement. Thoughts?