Dive Brief:
- Two-thirds of organizations that overspent on AI in the past year reported negative financial consequences, including lower free cash flow or reduced discretionary spending, according to a Capgemini Research Institute report released Thursday.
- Roughly 60% of organizations surveyed said their AI expenditures were significantly higher than expected or budgeted over the previous 12 months. Among those that overspent, expenditures averaged 24% above expectations, while 21% exceeded budgets by more than 30%.
- “As AI moves deeper into business workflows, organizations need to stop treating AI costs as a technology or procurement issue and start managing AI as a portfolio of economic outcomes,” Volker Darius, CEO of Capgemini Invent, said in a press release.
Dive Insight:
Organizations have largely responded to overspending by tightening financial controls or scaling back projects rather than fundamentally rethinking how they deploy AI.
More than half (53%) of organizations that exceeded their budgets tightened budgets or controls or reduced the scope of initiatives. Another 20% reconsidered which activities should be handled by AI versus employees or changed their AI tools, models or configurations. Just five percent paused or stopped an affected initiative.
CFO involvement in approving major AI investments is also increasing. CFOs participate in the approval process at 52% of organizations, up from 42% a year earlier, the Capgemini report found.
The September report surveyed 500 senior executives at organizations with annual revenue of more than $1 billion across 10 countries and 13 industries.
The growing focus on AI costs comes as CFOs also face mounting pressure to demonstrate returns on those investments. A separate Genpact survey of 2,005 enterprise executives found that, on average, less than half (49%) of AI initiatives funded over the previous two years had delivered their expected value. Only 15% of organizations had fully connected AI investments to specific profit-and-loss outcomes.
Many organizations lack a complete picture of AI costs, Capgemini found. Six in 10 respondents said their organizations do not have a comprehensive view of AI expenses, while half said AI spending had been approved without adequate visibility into the full costs. Only 56% were fully confident in their ability to forecast AI costs as adoption scales.
Sixty-one percent of executives said they expect their organizations to adopt a multi-model AI strategy over the next 12 months, potentially adding another layer of complexity to cost management.
The challenge extends beyond technology expenses to “indirect” AI costs such as human oversight and governance, Capgemini said. Only one-quarter of CFOs said they were fully confident in their ability to estimate those costs.
“Organizations need to measure cost, quality and business value together, use the most appropriate model for each task, and account for the human oversight required to deliver outcomes safely,” Darius said.
