Risky Business

“Risky” and “business” are two words that don’t go well together, unless you’re talking about mid-80s Tom Cruise movies.

Ventana Research just posted some great insights about how exactly companies are using new technologies, such as prediction markets and crowdsourcing, to manage risk and harness collective intelligence from employees who understand possible pitfalls but may not have previously had a means of expressing their concern or insight.

In their post “Who Knew the Risk? Everyone but You” they explain:

“…Any midsize or larger company is often at risk because those in charge do not have a way of comprehensively monitoring and managing the risks a company faces. The impact is multiplied because individual managers have no idea which of the risks of others could have a significant impact on their own part of the operation. Even if some of the risks are discussed from time to time in review meetings, it doesn’t mean that the organization has anything more than a vague sense of which are the most important. They don’t have a clear sense of the likelihood of them materializing, or the degree and nature of impact(s) they might have. As a result, executives and managers are unaware of what they should be looking for and cannot set priorities for managing risks. Worse, the consequences of some of the risks might ripple out with unforeseen (but foreseeable) consequences. What might appear to be moderately probable but seemingly low-cost impact (the failure of a low-cost component to pass thermal tests) could result in the delay of a critical subassembly and the need to spend a considerable amount of money dealing with this contingency. Unless the risks are networked, managers will not understand cross functional and interconnected risks.”

So how do prediction market’s fit in? Ventana continues:

“As applied to risk, prediction markets can be used to collect a more accurate perspective on issues that will affect an organization. It can be especially useful in performing ongoing corporate polling in areas where management will benefit from front-line input. For example, “What day will the new product ship?” is one way to assess whether — and to what extent — people in an organization believe this project objective will be met. When combined with a structured risk assessment process, internal prediction markets can provide senior managers with a more accurate way of measuring and monitoring key risk factors.”

There’s a lot more to their post — definitely worth a read!