5 min. read

How to measure the ROI of AI

As business leaders look to capitalize on AI opportunities, they are asking, how to predict the future returns for AI projects. Where should the investment be targeted, and what kind of capabilities can enable better performance?

As business leaders look to capitalize on AI opportunities, they are asking, how to predict the future returns for AI projects. Where should the investment be targeted, and what kind of capabilities can enable better performance?

Here’s Sankar Narayanan (‘SN’) sharing his thoughts on how to measure the ROI of AI in ways that aren’t limited to just financial returns. He also shares from his hands-on experience at implementing AI to provide business leaders with ways of thinking about success when it comes to AI projects.

Assessing the future value of AI

When we think what AI can do to the business, it mostly comes from multiple well-marketed examples, coming from well-defined areas. Like, the best chess player getting beaten by Artificial Intelligence. But problems like this, have a definitive endpoint, like in chess. However, most problems in Fortune 500 companies do not have a definite outcome. Problem statements that these companies deal with are, for example, will the next product launched, be successful? But what’s the definition of success here? Similarly, another example can be, how to improve customer experience in banking or similar sectors?

Most of these problems are vague and complex, and the outcomes defined in multiple ways. So, the challenge comes in quantifying the outcome on investment in something where the outcome itself is vague.  To answer this question, the most important thing to ask is whether we truly understand the business problem that we want to solve. In other words, is the business question well framed?

These are open-ended business problems and often use-cases where machine learning wasn’t in use before. For example, when we try to define payment fraud, there may be false positives and negatives that, attaining a specific ratio could define success. However, when we want to improve customer value for a wealth management client over 20 years, how do we get an answer for that. In this situation, it is not only vague but also an area where AI was not in use. To work in these areas, the very first thing to do is lock-in and frame precisely what the problem is.

Scaled problem solving

When Fortune 500 companies look at solving problems, they focus on solving them at a scale that can have an impact not only at a functional area but on the overall business and be sustainable. To get a deep understanding of what we are trying to solve, framing and reframing the business problem is a critical pre-requisite. Is it a problem of growth, is it a problem of inefficiency, or is it a problem of a better experience for our consumers? What are we looking to solve here?

When we talk about problem-solving at scale, there are three parts to the solution, post problem framing. The first is, identifying the levers of experience, growth, or inefficiency through advanced analytics/AI. The second one is to apply an engineering mindset and identify elements required for the AI initiatives to be successful at enterprise scale including setting up the appropriate architectural elements, managing the data lineage, latency, ingestion, obfuscation, and dev-ops.

Ultimately, the algorithms are only as accurate and actionable as the underlying data. And, if we have to do things sustainably, will the data be available, accessible and accurate over a period of time. The third and final component is execution, including design of experiments and human-centered learning. We also call this the final mile of decision making.

Every decision that enterprises are talking about is going to impact a human and is going to be made by a human. Do we understand those human needs that need a solution? To solve problems at scale, we need three elements to come together, i.e., better algorithmic sophistication, better engineering, and a better understanding of human behavior.

The code to success

The big-picture approach rests on various factors. There is no single way to get everything right. The ability to test and learn, the ability to experiment, the ability to fail fast but pick up the learnings and quantify the learnings are going to be very important.

Here is an example of a consumer goods company that made a remarkable transformation through AI. The approach the company took was to give every initiative a six-week time to show progress. What it allowed the company to do is become more rapid, not just in defining problems but also in defining the quantifiable measurement of success and progress. So, in 12 months, 30-40 different initiatives were executed to achieve Minimum Viable Outputs (‘MVO’) out of which 5 to 6 specific initiatives taken into organizational scale.

An ecosystem of innovation

What we learned from the example quoted above was, for an initiative to be successful, cross expertise teams need to work together. Projects are successful when there is an inter-disciplinary approach, as opposed to a multi-disciplinary framework. We further realized that the agile mode of working was going to yield better results and finally documenting learnings and quantifying the learnings increases the probability of success.

AI is a capability that helps us become more non-linear. A human plus machine approach will almost always be substantially better than the most intelligent human or the most sophisticated algorithm. The real value of success is if we realize that AI is a supply chain of several cobs to come together for customer experience to become better. When we look at the return on investment, we need to be cognitivist to the point that many of these moving parts need to come together for value addition. The process of defining and measuring the ROI of AI is a journey with the opportunities to affect change on business truly limitless.