How to Create an AI Development Budget [With Template]

Artificial intelligence has become a hot topic with the launch of ChatGPT, Bard, and other AI platforms. Businesses everywhere are realizing they can harness the power of machine learning and AI to make their business more efficient and provide a better customer experience.

Before developing their own custom AI solution, though, businesses need to develop a budget for their project.

Here’s what business leaders need to know to estimate their AI development costs and formulate a realistic budget for their project. 

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What Goes Into AI Development? 

Artificial intelligence can be used to streamline internal processes, automate mundane processes, reduce costs, provide additional products for customers, and more.

While there are many different types of AI products, the process of developing them is relatively similar. Of course, the more complex the project is or how long it takes to develop the product can have a big impact on the overall cost of the project.

When hiring an AI development company, you can expect them to follow a process like this:

• Defining the problem & outlining requirements: At the beginning of the project, companies need to identify how AI or machine learning could impact their business. If they’ve identified a problem and a use case for AI, this is when they can determine what they hope to accomplish. 
• Data collection & processing: Once you’ve determined what you’re hoping to accomplish, you must gather relevant data sets that can be used to train and test the AI model. This data should ideally be diverse, representative, and of high quality.
• Model training: Use the collected and preprocessed data to train the AI model. The model learns from the input data and adjusts its parameters to minimize errors or maximize performance. 
• Evaluation & Tuning: Assess the performance of the trained AI model using evaluation metrics such as accuracy, precision, recall, or F1 score. This step helps determine if the model is performing well and meeting the desired objectives. Fine-tune the model by adjusting hyperparameters, architecture, or other settings to improve its performance. This may involve techniques like cross-validation and hyperparameter optimization.
• Deployment: Integrate the trained model into a real-world application or system. This could involve creating APIs, building user interfaces, or deploying the model on cloud platforms.
• Maintenance & Retraining: Once you’ve launched your AI, the project isn’t over. Your AI model will need ongoing maintenance and may periodically need to be retrained to keep the system up-to-date and effective.

With a solid understanding of exactly what your AI development team is spending their time on and why it’s important, you can recognize what factors are impacting the cost of your project the most. 

How To Budget For AI Development Services

• Outline project requirements 
• Set a project cost limit
• Get quotes from developers 
• Account for ongoing maintenance needs

Outline Project Requirements 

At the beginning of the project, company leaders must outline what they hope to accomplish by developing a custom AI solution. Driven by their project goals, they should be able to outline requirements for the final product.

These requirements can include the sources of the AI’s training data, the hardware and software infrastructure needed to develop and deploy the AI model, and the AI model they’ve selected.

In addition to basic information about the process, they should also include expectations for the final product: what should the user interface look like? Do they have design and UX expectations? How do they plan to evaluate the success of the AI model? Will they track metrics like precision, recall, accuracy, F1 score, or other domain-specific measures?

Whether you’re working with an internal team or are planning to hire an AI development company, the answers to these questions will impact your development process. The more complex and more lengthy the development process, the more you will have to budget for the project.

Bring these requirements to any intro discussion for the project, as it will be able to help developers estimate the project cost. 

Set a Project Cost Limit 

Beginning a custom AI development project is exciting and it’s easy to get carried away, but it’s important to be realistic about what your organization is willing to spend on developing their new tool.

While project estimates can guide your budget, it’s important to balance how much your business can afford. That’s why companies should carefully assess their finances before launching into a new project.

Review profit and loss statements, revenue, and expenses you expect to incur during the development process. Then, set a maximum amount you’re willing to be able to spend on the project.

Keep in mind that your new AI tool may generate new revenue, making it worth the investment. 

Get Quotes from AI Developers 

At the end of the day, you can estimate how much your AI development project will cost but it may differ from a realistic budget. The best way to understand AI development pricing is to ask for quotes from developers.

Internal development teams should be able to break down what your AI project will cost by determining how much time your team will need to allocate to the project. They will consider the cost of developers’ salaries, what additional tools they will need, how much it will cost to collect training data, and more.

Just as importantly, they will consider what other development projects will be deprioritized to allow them to focus on the AI development project and how that will impact your business.

If you don’t have an internal team or need to scale your team to support your new project, you will need to hire an AI development company. These teams will charge hourly rates based on the expertise and experience needed for your project. However, they will also provide an estimate for the total project cost.

How much an AI development company charges for their services can vary, though. While the scope of your project will inherently impact the budget, other factors can impact this estimate as well. Team size, where the company is located, their expertise, and timeline constraints can affect their estimate.

To make sure you find the perfect partner for your AI development project, be sure to shop around and speak to several experts before making a hiring decision. 

Account for Ongoing Maintenance Needs 

The project doesn’t end once you’ve deployed your custom AI solution. In order to be effective and get the most from your investment, companies need to maintain their AI solution.

This includes regularly retraining your software using fresh data, updating algorithms, modifying the UI for a better user experience, and more.

If you hire an external development team for your project, your business may be able to keep them on retainer. For a flat monthly fee, they will maintain your AI model to ensure that it is operating the way it’s supposed to. Alternatively, you can hire an internal team to maintain the product going forward.

No matter how you plan to approach the platform’s maintenance, it’s important to include these fees in your development budget. 

AI Budget Template