Generative AI projects have high costs

According to consultancy Gartner, at least 30% of generative artificial intelligence (GenAI) projects will be abandoned by the end of 2025. The reasons range from poor data quality, inadequate risk controls and rising costs, to a lack of clarity about business value.

This warning was highlighted during the Gartner Data & Analytics Summit in Sydney, where Rita Sallam, vice president and distinguished analyst at Gartner, discussed the dashed expectations many executives have regarding the returns on GenAI investments.

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Investments without immediate return

According to Sallam, after the huge hype surrounding generative AI in 2023, organizations are finding it difficult to prove the value of these projects. She noted that as the scope of projects expands, the financial burden of developing and deploying GenAI models is increasingly felt.

The big challenge is justifying high investments in generative AI, especially when it comes to productivity improvements that are difficult to translate directly into financial benefits.

Many companies are using GenAI to transform their business models and explore new opportunities. However, these approaches come with significant costs, which can range from $5 million to $20 million.

High and variable costs

One of the points raised by Gartner is that there is no one-size-fits-all formula for generative AI, and the costs are not as predictable as those of other technologies. According to Sallam, factors such as the use cases selected, the implementation methods used and the level of integration of AI into the business end up being determining factors for the amount that will be invested.

She also revealed that costs and risks vary according to the organization’s ambitions, whether for those who want to revolutionize the market with AI, or for those who have a more conservative focus, focused on productivity gains and existing processes.

“Unfortunately, there is no one-size-fits-all approach to GenAI, and the costs are not as predictable as other technologies”said Sallam. “What you spend, the use cases you invest in, and the implementation approaches you take determine costs. Each approach has different levels of cost, risk, variability, and strategic impact.”

Additionally, organizations adopting generative AI need to accept that the returns on investment may be indirect and future, which can be challenging for many CFOs. Historically, CFOs prefer investments that deliver immediate value, which can lead them to focus on capabilities that deliver tactical, rather than strategic, results.

Still, the benefits are already beginning to emerge

While many projects are struggling, pioneering companies across a range of industries are already reporting significant improvements. According to a recent Gartner survey, companies that have adopted generative AI have seen an average 15.8% increase in revenue, 15.2% cost savings and 22.6% improvement in productivity. The survey was conducted between September and November 2023 and included the participation of 822 business leaders.

This data serves as a valuable benchmark for assessing the business value generated by generative AI. However, Sallam stressed that the benefits can vary greatly depending on the company, the type of use case, the role played and the workforce involved.

Furthermore, positive impacts may not be evident immediately and may only materialize in the long term. “This delay, however, does not diminish the potential benefits”Sallam explained.

The Impact and ROI of Generative AI

To help businesses make strategic decisions about investing in GenAI, Gartner suggests that organizations analyze the financial impact and long-term value generated by these technologies. This helps calculate the return on investment (ROI) and justify the costs involved in innovating their business models with generative AI.

“If business results meet or exceed expectations, companies can expand their investment, scaling GenAI innovation and applying it to more divisions,” said Salam. “Otherwise, it will be necessary to explore alternatives for innovation. These insights help organizations allocate resources strategically and determine the most effective path forward.”

Fonte: Gartner