Gartner forecasts that at least 30% of generative AI (GenAI) projects will be abandoned after proof of concept by the end of 2025.
The primary reasons cited for this high dropout rate include poor data quality, inadequate risk controls, escalating costs, and unclear business value.
The heightened expectations from executives eager to see returns on GenAI investments have put pressure on organizations. However, many are struggling to demonstrate and realize the anticipated value, Gartner said.
As initiatives expand, the financial burden associated with developing and deploying GenAI models becomes more pronounced.
One of the significant challenges faced by organizations is justifying the substantial investment in GenAI, especially when it is aimed at productivity enhancements that are difficult to directly translate into financial benefits.
Many organizations are leveraging GenAI to transform business models and create new opportunities, but these approaches come with significant costs, ranging from $5 million to $20 million.
Gartner notes that there is no uniform cost structure for GenAI projects. The expenses vary based on the specific use cases, the level of AI integration desired, and the deployment strategies adopted.
Whether a company is a market disruptor aiming to infuse AI across the board or has a more conservative focus on productivity gains, each approach entails different costs, risks, variability, and strategic impacts.
Despite varying ambitions, Gartner’s research indicates that GenAI requires a higher tolerance for indirect and future financial investment criteria rather than immediate returns on investment (ROI).
Historically, many CFOs have been hesitant to invest in technologies with deferred benefits, often skewing investment allocations towards tactical rather than strategic outcomes.
Early adopters across various industries have reported improvements due to GenAI deployment, with benefits varying by use case, job type, and worker skill level.
According to a recent Gartner survey of 822 business leaders conducted between September and November 2023, respondents reported average improvements of 15.8% in revenue, 15.2% in cost savings, and 22.6% in productivity.
These data points provide valuable references for assessing the business value derived from GenAI innovations. However, Gartner emphasizes that the challenges in estimating value are significant, as benefits are highly specific to each company, use case, role, and workforce.
Often, the impact of GenAI investments may not be immediately evident and might materialize over time, according to the report.
Gartner provides further insights in the report “Calculating the ROI on GenAI Business Model Innovation” and offers additional analysis in the complimentary webinar “What Mature Organizations Do Differently for AI Success.”