Dive Brief:

  • Even a carefully managed AI strategy will drive up enterprise IT budgets as the technology becomes embedded in operations, according to a Bain & Co. report published Thursday.
  • Based on projected spending trends, the management consulting firm estimates that a typical $10 billion consumer packaged goods company will see its annual IT costs rise 75% by 2035. Without cost controls, spending could escalate even more rapidly, the firm found.
  • To curb expenses, Bain & Co. advises executives to evaluate each AI project as an investment decision, adding rigor to the process. Enhancing visibility into tech spending plans and reinvesting AI-driven efficiencies can also foster greater discipline.

Dive Insight:

Cost management remains a top priority for enterprise leaders, as new expense categories emerge in IT budgets while businesses integrate AI into existing operations.

Gartner projects that spending on AI models and platforms alone will surge more than 63% from last year to $64 billion. The rise in enterprise AI adoption, coupled with increased compute demand, is also contributing to a 14.2% year-over-year increase in global IT spending, according to the analyst firm.

Bain & Co. attributes the spending surge to greater architectural complexity, higher cybersecurity costs, and growing data governance requirements, alongside talent investments and the rapid obsolescence of AI platforms.

Although Bain & Co.'s analysis centered on the consumer packaged goods sector, the firm anticipates similar cost patterns across other industries, said Danielle Burgs Escobar, head of Bain & Co.'s U.K. enterprise technology practice.

“Probably more or less extreme, and also on different timescales … but I think that the trend is going to be pretty universal,” Burgs Escobar told CIO Dive.

As costs climb, leaders are adopting a more cautious stance on AI deployment, analysts and executives previously told CIO Dive. Most businesses are struggling to measure the ROI on prior AI investments, and one report suggested that one-quarter of AI spending is wasted as pilots are shut down.

Amid rising concern, there is real peril in being overly cautious, Burgs Escobar warned.

“If you underinvest, you get left behind,” said Burgs Escobar. “Your competitive advantage erodes, you do things the old way and you're not taking advantage of technology.”

But overspending also carries consequences.

“When you overspend, you lose credibility with your organization and become just a cost center, rather than driving the return on investment that the overall organization really needs,” Burgs Escobar said.