Devising a Framework to Determine the Return on Investment (ROI) for AI

The consulting firm has asked the Capstone team to devise a framework for calculating the return on investment for Generative AI, which could be used to advise client companies on their AI investments. Upon the industry research, analyses, and discussions, the Capstone team and the client agreed that instead of devising a comprehensive framework, it is more meaningful and appropriate to draft a report on the work the team has done about this yet nascent technology in the industry.

The report is structured to provide an overview of the private and public benefits brought about through the deployment of Generative AI in financial industry. The former section is dedicated to demonstrating the Capstone team’s analysis on how Generative AI can improve the cost structure or profits, mainly by looking into the cost of goods sold (COGS) and the selling, general & administrative expenses (SG&A) information from selected firms’ financial statements. It also includes a historical approach that uses data from firms that have already implemented Generative AI, and a decision tree model. These approaches collectively point that there are currently critical limitations for creating a framework, such as the lack of granular data and the insufficient industry presence of the technology.

The potential public benefits from Generative AI are currently garnering a lot of attention from companies and the public at large. While Generative AI can usher in social advantages as well as disadvantages, the Capstone team has concluded that for understanding the intricacies and calculating the associated benefits, further research is needed.