Declining Prospects for Generative AI Projects
Research conducted by Gartner suggests that by the end of 2025, at least 30% of generative AI (GenAI) projects may be abandoned after their proof of concept phase. The primary reasons for these abandonments include low-quality data, insufficient risk management measures, escalating expenses, and ambiguous business benefits.
During the recent Gartner Data & Analytics Summit held in Sydney, Rita Sallam, a Distinguished Vice President Analyst at Gartner, highlighted a growing impatience among executives who are eager to realize returns on their GenAI investments. “After last year’s hype, executives are impatient to see returns on GenAI investments, yet organizations are struggling to prove and realize value. As the scope of initiatives widens, the financial burden of developing and deploying GenAI models becomes increasingly evident,” stated Sallam.
Justifying High Investments in GenAI
For many organizations, justifying the considerable investments in GenAI to boost productivity remains a significant challenge. While several businesses are leveraging GenAI to overhaul their operational models and unlock new opportunities, these ventures come with substantial costs, which can range from USD $5 million to USD $20 million.
Sallam emphasized, “Unfortunately, there is no one-size-fits-all approach with GenAI, and costs aren’t as predictable as with other technologies. Your expenditure, the use cases you choose to pursue, and your deployment strategies all play a role in determining the overall costs. Whether you’re aiming to be a market disruptor or are focused on improving existing processes, the associated costs, risks, variability, and strategic implications differ greatly.”
Investment Risks and CFO Perspectives
Gartner’s research indicates that deriving value from GenAI necessitates a greater tolerance for future financial investments rather than relying solely on immediate returns on investment (ROI). Historically, many Chief Financial Officers (CFOs) have shown hesitance to commit funds for deferred value, often leading to a skewed focus on tactical over strategic investment outcomes.
In sectors where GenAI adoption has already started, early adopters have reported notable business improvements. A recent Gartner survey conducted from September to November 2023 revealed an average revenue increase of 15.8%, cost savings of 15.2%, and productivity enhancements of 22.6%. According to Sallam, “This data provides a crucial reference point for evaluating the business value gained from GenAI-driven innovations. However, it’s vital to recognize that estimating this value can be complex, as the advantages are often specific to individual companies, use cases, workforce roles, and other variables.”
Calculating the Impact of GenAI Investments
Gartner advises organizations to analyze both the business value and total costs associated with GenAI to ascertain its impact. Such an analysis is essential for establishing direct ROI and nurturing future value assessments. Sallam stated that “If the business outcomes align with or surpass expectations, it creates opportunities for further investment by scaling GenAI’s use and implementation across a broader range of applications or departments. Conversely, if outcomes fall short, organizations might need to consider alternative innovation strategies.”
This strategic insight enables organizations to allocate resources efficiently and determine the most effective paths for GenAI integration.
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