A common method to financially justify investments in new solutions is using a reduction in TCO (Total Cost of Ownership) approach — identifying expenses and budget areas that can be reduced or eliminated with the investment.
While in some cases that is enough to identify the economic benefits from an investment, often, that is not sufficient to forecast a positive impact on cash flow and an acceptable ROI.
If investments in digital solutions—such as the case of artificial intelligence (AI) solutions—requires more than a TCO assessment, then the question is, where and how can we identify the economic benefits of AI and advanced technologies?
The short answer is: By identifying and determining measurable business capabilities to be provided by the AI solution.
According to the EVC framework, the best business outcomes are a result of new or improved business capabilities—in other words, an improvement in how work is done.
The impact of AI and digital solutions results in changes in operational assets (people, process, and technology), or financial assets (such as accounts receivables and inventory), or in market assets (products and brands). While some of these types of asset changes may result in a direct cost reduction, we must be aware that digital assets generate business capabilities for internal or external customers, and the most significant strategic and economic benefits from a change in any asset, is not the improvement of the asset itself, but the business capabilities created or improved with the change in the asset.
That is why it is important that in any transformation initiative involving AI, ML, RPA, or advanced digital solutions, the business teams start the search for economic benefits by identifying the operational and digital capabilities to be created, improved, or sustained with the new AI initiative. If the business capability is measured in operational terms, then it can be easily quantified in economic terms.
To learn more about how the business capabilities from an AI solution result in economic benefits and how to build an AI Business Value Plan using the Excellence in Value Creation (EVC) framework, visit https://globallynx.com/training/evc/Artificial-Intelligence-Implications-for-Business-Strategy