Measuring ROI in the Generative Era

Traditional ROI calculations fall short when applied to generative AI. Unlike conventional software investments with clear per-seat licensing costs and defined functionality, LLMs introduce variable costs, emergent capabilities, and productivity benefits that materialize across unexpected workflows.

A New Framework for AI ROI

We propose a three-tier evaluation framework: efficiency gains, capability expansion, and strategic optionality. Each tier requires different metrics and measurement horizons.

Measurement Tiers

• check_circleTier 1: Efficiency Gains: Direct time savings in existing workflows. Measurable within weeks of deployment through before/after time studies.
• check_circleTier 2: Capability Expansion: Enablement of tasks previously outsourced or not performed. Measured through project completion rates and quality metrics.
• check_circleTier 3: Strategic Optionality: Creation of new business opportunities impossible without AI. Measured through new revenue streams and market positioning.

The key insight is that Tier 1 benefits justify the initial investment, but Tiers 2 and 3 determine competitive advantage. Organizations that focus exclusively on cost reduction miss the transformative potential of generative AI.