With the global AI market expected to reach $1.6 Trillion by 2030, it’s more important than ever to understand how to evaluate the impact and value of AI systems.
So, how do you measure the value of an AI system? It’s a complex question, but some key factors can help you determine the valuation of an AI system. And while it may be challenging to assign a dollar amount to some of the benefits of AI, it’s still possible to gain clarity and understand its impact.
As a consultant specializing in designing AI systems, one of the most common questions I get asked, “How do you measure the value of an AI system?” It’s a complex question with no easy answer, but some key factors can help you determine the valuation of an AI system. So let me guide you through the process and help you understand the potential value of AI in your business.
In this article, we’ll explore different ways to evaluate the impact and value of AI systems, including time-saved, increased positive outcomes, decreased negative outcomes, and improved perception.
Let’s dive into these factors and explore how you can use them to measure the value of AI systems.
Time-saved
One of the most significant benefits of AI systems is the time they save. In addition, by automating tasks that would otherwise require human intervention, AI can free up employees to focus on higher-level work.
For Employees
To calculate the value of time saved for hourly employees, we can use the following formula:
Annualized time * Hourly cost
Let’s say an AI system saves an employee 10 hours per week, and that employee’s hourly rate is 500, or 50 x 10 x 52).
Pretty simple.
For Buyers
However, for buyers of AI systems, like entrepreneurs, executives, and investors, the value of time saved may be more difficult to quantify. For them, the value of time saved may be more subjective, such as not missing out on important life events or spending more time with loved ones.
Consider the value of not missing out on “life” - for example, a personal assistant AI that helps busy executives manage their schedule and allows them to attend their child’s soccer game. While it may be difficult to assign a dollar value to this “life experience,” it’s important to consider its impact on the value of the AI system.
In the next sections, we’ll explore other ways AI systems can provide value, including increasing the probability of positive outcomes, decreasing negative outcomes, and improving perception.
Increasing Positive Outcomes
Another way to measure the value of AI systems is by their ability to increase the probability of positive outcomes. These positive outcomes can be easy to measure monetarily, like acquiring a customer, decreasing churn, gaining investment, or getting acquired. But other non-monetary outcomes may be harder to measure, like improving brand perception, going viral, or gaining attention.
An AI system can increase the probability of positive outcomes in three ways:
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Increasing quantity
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Increasing quality
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Both quantity and quality
Quantity
AI systems can assist employees and increase their output by researching and writing drafts. For example, by enabling employees to send more emails and publish more content, the AI system creates more opportunities for engagement with potential customers and investors.
Quality
AI systems can analyze data and provide insights that lead to better decision-making. For example, an AI system can analyze customer behavior data and provide the following:
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Insights on how to improve customer experience.
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Leading to increased customer satisfaction and loyalty.
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Increasing the lifetime value of the customer.
Quantity & Quality
AI systems that improve quantity and quality can be the most valuable. A typical example of this is on social media. An AI system that analyzes social media trends and user behavior can assist in creating content that better resonates with the target audience, increasing the likelihood of going viral.
By increasing the probability of positive outcomes, AI systems can provide significant value to businesses. The ability to make better decisions, acquire more customers, and improve brand perception can help companies achieve their goals, leading to long-term success and growth.
Measuring
Calculating the value of getting more customers or keeping existing ones happy can take time and effort. But here are some ways to do it. First, it’s important to identify all positive outcomes value for each.
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Economic outcomes: Revenue gained or costs saved.
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Attention outcomes: Number of likes, shares, and comments on social media or website engagement.
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Brand perception outcomes: Surveys or focus groups that measure changes in brand perception over time.
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Priceless outcomes: For example, if a medical AI system can diagnose a patient’s condition faster than a human doctor, that could mean the difference between life and death.
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To calculate a value based on increased positive outcomes, you should make projections based on past performance to compare with actual performance after implementing the AI system.
In the following sections, we’ll explore how AI systems can also decrease negative outcomes and improve perception.
Decreasing Negative Outcomes
In addition to increasing the probability of positive outcomes, AI systems can decrease the likelihood of negative outcomes. For example, an AI system that analyzes customer complaints can provide insights on how to improve products or services, reducing the likelihood of unhappy customers and negative reviews.
Decreasing negative outcomes can also have a significant monetary impact. By reducing customer churn and improving customer satisfaction, companies can retain more business and avoid the costs associated with acquiring new customers.
Measuring the value of decreasing negative outcomes can also be challenging. To calculate the savings attributed to the AI system, start by identifying the potential negative outcomes and estimating their associated costs, for example, the cost of losing a customer, negative reviews, or damage to a company’s reputation. Next, track the number of these outcomes over an easily comparable period, like yearly, and make projections based on past performance.
Calculate the difference between the projected costs based on past performance and actual costs incurred after implementing the AI system to get the value in savings attributed to the AI system.
Improving Brand Perception
AI systems can also help improve brand perception in several ways. For one, publicizing the use of AI systems gains the immediate perception of being an innovative and capable tech company, which is becoming necessary in our society that’s increasingly dependent on technology. And by maintaining a reputation of being on the cutting edge of tech, it can be easier to attract top talent and stay ahead of competitors.
Another way is personalizing customer experiences and providing relevant recommendations. For example, an AI system can provide tailored recommendations that increase customer satisfaction and loyalty by analyzing customer data.
Maintaining a positive brand perception is crucial for long-term success and can lead to increased customer loyalty, word-of-mouth referrals, and a positive reputation within the industry.
Case Studies
Case Study #1: Personal Assistant AI
A personal assistant AI system saved an executive 10 hours per week by managing their schedule and avoiding conflicts. The executive’s hourly rate is 104,000 ($200 x 10 x 52), plus the non-quantifiable but equally valuable opportunity to attend their daughter’s soccer games.
Case Study #2: AI-Powered Customer Service
A company implements an AI-powered customer service system that can handle simple inquiries and redirect more complex issues to human representatives. This AI system reduced the number of customer service representatives needed by 50%, resulting in a cost savings of $500,000 annually.
Furthermore, the AI-powered system improved customer satisfaction by providing faster and more accurate responses, leading to fewer unhappy customers and lower costs for resolving complaints.
Case Study #3: Fraud Detection AI
A fraud detection AI system helps a financial institution detect fraudulent activity and prevent unhappy customers. The AI system detected 20 instances of fraud per month, saving the company an estimated $50,000 per month in losses.
Case Study #4 AI-powered Chatbot
A mid-sized e-commerce company implemented an AI-powered chatbot to provide instant customer support. As a result, the chatbot reduced the average response time from 24 hours to just a few minutes.
As a result, the company saw a 30% increase in customer satisfaction and a 20% decrease in unhappy customers. Moreover, the chatbot was available 24/7, meaning customers could get help outside business hours. The company estimated that the chatbot saved them $50,000 annually in employee costs.
Case Study #5: AI-powered Investment System
A mid-sized investment firm implemented an AI-powered system that analyzed investment data and provided insights to investors. As a result, the system helped investors make better decisions, which resulted in a 10% increase in investment returns.
Additionally, the system analyzed data more accurately and faster than humans, which helped the investment firm stay ahead of the competition. As a result, the company gained more investors and increased its revenue.
Decision Methodology
To decide whether the value of an AI system will provide a positive return on investment, you can use the following steps:
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Identify the specific benefits of the AI system.
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Determine the necessary metrics for calculating the value of each benefit.
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Calculate the annualized value of each benefit using the identified metrics.
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Consider additional benefits, such as improved customer satisfaction or perception, and assign a subjective value to them.
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Compare the total value of the AI system to the cost of implementing and maintaining it.
Valuing AI Systems
Measuring the value of AI systems can be challenging, but it is crucial to justify the investment.
It’s important to remember that the value of AI systems extends beyond just time saved. By increasing the probability of positive outcomes, decreasing negative ones, and improving perception, AI systems can provide significant value to businesses.
While measuring the value of AI systems can be challenging, it’s essential to identify all possible outcomes and estimate the costs or value associated with them.
With the latest advances, AI systems are becoming valuable investments in more than just the largest enterprises. As AI technology advances, we can expect it to provide even more value and higher ROI to companies of all sizes.
Are you ready to learn more about how AI systems can benefit your business? Schedule a consultation.