Almost a third of generative AI projects will be discontinued after proof of concept by the end of 2025, according to a new study by Gartner. The primary reasons for the abandonment, said the US-based technological research and consulting firm, include substandard data quality, insufficient risk controls, increasing costs, and uncertain business value. In light of these factors, said Gartner, many organisations are struggling to justify the significant outlays required for GenAI projects, particularly as they relate to productivity improvements.
“After last year’s hype, executives are impatient to see returns on GenAI investments, yet organizations are struggling to prove and realize value,” said Gartner distinguished VP analyst, Rita Sallam. “As the scope of initiatives widen, the financial burden of developing and deploying GenAI models is increasingly felt.”
High costs associated with implementing generative AI projects
The firm said that many major companies are shifting towards GenAI to innovate their business models and explore new opportunities. However, the costs associated with this technology can often be higher than expected. Building custom models from scratch – for example, to conduct financial market analyses or rationalise medical records – can incur upfront costs of up to $20m, according to Gartner, with recurring costs per user per year in the tens of thousands of dollars. Similarly, implementing document search with RAG can cost up to $1m, with recurring costs of up to $11,000 per user annually.
“Unfortunately, there is no one-size-fits-all with GenAI, and costs aren’t as predictable,” Sallam explained. “Whether you’re a market disruptor and want to infuse AI everywhere, or you have a more conservative focus on productivity gains or extending existing processes, each has different levels of cost, risk, variability and strategic impact.”
Most chief financial officers (CFOs) tend to favour investments with clear, near-term returns. This preference often leads to a focus on tactical rather than strategic initiatives, said Gartner. Indeed, some of these investments appear to have paid off for select companies. A recent survey by Gartner conducted between September and November 2023 among 822 early adoptees of generative AI found that, on average, respondents enjoyed a 15.8% increase in revenue, 15.2% in cost savings, and a 22.6% improvement in productivity.
Important to make detailed plans for AI projects
Even so, not every firm will have enjoyed such benefits, Sallam acknowledged. While Gartner’s 2023 survey results constituted an important reference point for companies exploring the potential benefits of generative AI, every business is different – and, to that extent, has widely divergent financial priorities. For their part, Sallam urged businesses to be prudent when considering the cancellation of fa new generative AI project.
“It’s important to acknowledge the challenge in estimating” the value of generative AI to firms, said Sallam. “Benefits are very company, use case, role and workplace-specific. Often, the impact may not be immediately evident and may materialise over time. However, this delay doesn’t diminish the potential benefits.”
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