Three sources of effect: cost, revenue, speed

AI strategy for executives · Lesson 1 / 20

Cost, revenue, speed — and nothing else

Every effect from AI arrives from one of three places. The first is cost: the same work gets done with fewer person-hours or cheaper inputs. The second is revenue: more deals closed, higher average order value, lower churn. The third is speed: the cycle from order to shipment or from incident to resolution gets shorter, and that difference converts into cost or revenue. An initiative that attaches to none of the three is an experiment: fund it if you like, but from a different budget.

Why saved time is not yet money

The most common slide at a review says: we will save twelve thousand person-hours a year. Those hours do not disappear. An employee who gets forty minutes back stretches the remaining work or takes on something they never had time for. Hours become money only through a management decision: either you skip the next five hires while the business grows, or the same headcount pushes a third more volume. Somebody has to make that decision and write it into the department budget. Without that line, the saving stays in the presentation while licence and integration costs land in the profit and loss statement.

What an honest link to money looks like

Cost. A specific budget line is named and there is a manager who has signed up to reducing it.
Revenue. A funnel metric is named, its twelve-month baseline is known, and it is clear which step changes.
Speed. There is a cycle length in days today, a target, and an explanation of what the difference buys: earlier payment, fewer penalties, more inventory turns.

Effect card (one page per initiative)
Source of effect: cost / revenue / speed
Baseline today: ______ (the number and where it came from)
Target in 6 months: ______
Budget owner who signed up: ______
What we will stop doing or stop spending: ______

Insight. Speed is almost always undercounted. Cutting contract approval from eleven days to three rarely makes it into the model, yet often yields more than the document saving the project was launched for.

Common mistake. Expressing the effect as a percentage of company revenue. Percentages do not survive scrutiny: ask for absolute money on a specific site and half the initiatives fall apart.

Pro tip. Introduce a one-page rule: no effect card, no place on the agenda. It costs less than any committee and screens out half the requests before discussion starts.

Cheat sheet

Three sources of effect: cost, revenue, speed. There is no fourth.
Hours become money only through a decision on headcount or output.
An effect with no budget owner is an intention, not an effect.
Count absolute money on a specific site, not percentages of turnover.

1. An initiative promises to free up 12,000 person-hours a year. What turns that figure into money?

2. Which statement of effect will survive a board review?

3. What should you do with an initiative that attaches to neither cost, revenue, nor speed?

🔒 Answer the question correctly to move on to the next lesson.