AI Accounting: Are You Throwing Money Into the Void?

Remember the dot-com boom? Or the mobile revolution? Companies poured millions into those technologies, often without a clear understanding of the value they'd deliver. Now, we're seeing the same frenzy with artificial intelligence (AI).

The mad rush to AI

Leaders in most organizations are scrambling to adopt AI, often driven by the fear of missing out (FOMO). Too often, they aren’t asking the tough questions: What's the return on investment (ROI)? What are we really spending on this?

In many organizations, executives don't have a clear handle on their AI costs. They might know the vendor and the contract, but they don't understand the true cost of AI.

The myth of free AI

Take OpenAI’s ChatGPT as an example. People used the free version, and got great results, without spending any money. Consequently, a lot of people started thinking AI was free. The problem is that AI is not free and if you have enterprise requirements, it’ll cost you … a lot.

Tokens are the new currency

The costs of AI can quickly add up.

Consider this: At a recent internal workshop, we used 24 million tokens in a single day. At common pricing rates, that translates to roughly $7.20. If you extrapolate that across 260 working days and 500 employees, the total cost quickly balloons to over $1 million. That’s money someone in your organization will want to see a return on. The question then becomes, how do you allocate that million-dollar investment to the value it's supposed to be delivering?

Allocation is key

One simple allocation method is to distribute costs based on department headcount.

For example, if your department has 5% of the company's employees, you'd be allocated 5% of the company’s total AI cost.

However, as AI spending grows, this simplistic approach may not provide sufficient insight. More thoughtful accounting and allocation methods become critical.

Treating AI like people vs. treating AI like a utility

A key decision for any organization investing in AI is determining how to account for it.

There are essentially two paths: Treat AI as a utility or treat it as a worker.

1. Should it be viewed as a general operating expense, like electricity?
2. Or should it be measured like the output of an employee and the results its labor accounted for?

Time to get serious about AI accounting

• Track your AI usage and costs meticulously.
• Negotiate favorable rates with your AI vendors.
• Develop a clear allocation method that reflects the value AI delivers.

Don't let your AI investments become a black hole. Take control of your AI accounting and ensure you're getting a real return on your investment.