• Services
      • Artificial Intelligence
      • Data Analytics
      • Data Engineering
      • Software Development
    • Solutions
      • Predictive Project Assurance
      • Next Gen Dietician Practice Management
      • AI-led Smart Premise Watch
      • Document Processing Using AI
    • Blogs
    • About Us
    • Contact Us
NextTechWorks
NextTechWorks
  • Services
    • Artificial Intelligence
    • Data Analytics
    • Data Engineering
    • Software Development
  • Solutions
    • Predictive Project Assurance
    • Next Gen Dietician Practice Management
    • AI-led Smart Premise Watch
    • Document Processing Using AI
  • Blogs
  • About Us
  • Contact Us

How to measure ROI in AI

  • June 20, 2020
  • ntwadmin
  • Artificial Intelligence

Artificial Intelligence is becoming a part of almost every aspect of the business. Although calculating ROI in AI is very important, it’s not so straightforward. Netflix’s recommendation engine is a good example of it.

In 2006, Netflix announced the Netflix Prize. It was for improving the accuracy of their recommendation system called “Cinematch”. The target they set was to achieve a 10% improvement.

The Korbell team achieved an 8.43% improvement in the first year of the competition which was worth 2000 hours of their efforts resulting in a combination of 107 algorithms. These algorithms are still part of their recommendation engine.

When the competition ended two years later, they had an impressive compilation of hundreds of predictive models. However, as they moved from DVDs to streaming, the focus shifted and they had to make significant changes to the algorithm.

Netflix expanded its business into more countries and added new features such as users accessing their services through multiple devices. Now, with continuous optimization of their personalization algorithms, the outcome is 75% of what its customers watch is through some sort of recommendation.

Netflix, in recent years, reported that its new content recommendation engine saved the company $1 billion annually by reducing the customer churn rate. You can see how important and strategic the recommendation engine is for their business. Also, this is not a one-time effort but a continuous process of optimization of their recommendation engine to achieve this phenomenal ROI.

How to calculate ROI in AI

Calculating the ROI of investments in AI is sometimes challenging because the result is the combination of efforts of multiple aspects of the business. Here are a few considerations that might help in calculating ROI in AI.

Identify a specific problem to solve

The first and foremost is to identify what specific problem we are solving by the use of AI. When Harley-Davidson decided to use an AI-based marketing automation tool at one of their dealerships, the objective was to improve the lead generation and conversion rate.

Work out costs of implementing AI

The next step is to work out all the expenses related to the implementation of Artificial Intelligence. This could include:

  • Prototyping and designing,
  • Effort cost in developing, testing, and deploying AI solution,
  • Licenses and tools if required,
  • Data costs for capturing, maintaining, storing, and protecting it, and
  • AI algorithm(s) maintenance and improvisation

Assess the benefits of implementation of AI

Identifying possible benefits from an AI investment might be trickier than calculating costs. The reason is it can include tangible as well as intangible benefits, as

  • Increase in revenue,
  • Efficiency gain,
  • Improved productivity
  • Compliance
  • Competitive edge
  • Brand value

Compare cost and benefits

Finally comparing costs against benefits can help understand the impact of AI investments on the business. A better way of looking at it through a few possible scenarios of best case and worst case.

While looking at both the costs and the benefits, creating a ‘proof of concept’ (PoC) can tremendously help to identify possible risks in investment. It can demonstrate the feasibility of the practical implementation from the ROI perspective.

Conclusion –

Investments in AI need to start with an experimental outlook than a typical software development project. A proof of concept is an important step in assessing the costs and benefits of AI to get a more accurate picture of the ROI.

A comprehensive exercise of working out the costs and benefits can get the ROI calculations closer to reality.

Tags: ai

Recent Posts

Scan, Search, & Speak With Your Physical Papers March 25, 2024
Generative AI and its use cases January 10, 2024
Design Led Innovation August 12, 2023
Innovation Drivers & Significance June 18, 2023

Company Brochure

Download PDF

Categories

  • Artificial Intelligence
  • Blockchain
  • Computer Vision
  • Data Visualization
  • Deep Learning
  • Digitize Papers
  • Innovation
  • Language Processing
  • Machine Learning
  • Nutrition App
  • Web App
  • Web Development
NextTechWorks

Your incubation partner in delivering next generation technology solutions

Contact Us

  • Pune, India
  • +91 91300 96120
  • info@nxtechworks.com

Navigation

  • About Us
  • Send Enquiry
  • Blogs

Privacy and t&c

  • Privacy policy
  • Terms and conditions

Copyright © 2024 NxTechWorks Consulting (OPC) Pvt. Ltd. (CIN - U74999PN2019OPC184539). All rights reserved.

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of all the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
Cookie SettingsAccept All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT