Return on Investment for Machine Learning

Instead of asking “How do we get 100% accuracy?”, the right question is “How do we maximize ROI?”

Photo by Michał Parzuchowski on Unsplash

Machine learning deals with probabilities, which means there’s always a chance for mistakes. This inherent uncertainty makes many decision makers feel uncomfortable with implementing machine learning and traps them in an endless chase for the magical 100% accuracy. The fear of mistakes nearly always pops up when I’m working with companies taking their first steps towards intelligent automation, and I get asked “What happens if the prediction is wrong?”

If this issue is not addressed, the company will very likely spend a hefty amount of resources and years of development time on machine learning without ever getting returns for their investment. In this article, I’ll show you the simple equation I use to relieve these concerns and get decision makers more comfortable with the uncertainty.

When is machine learning worth it

Just like with any investment, the feasibility of machine learning comes down to whether it generates more value than it costs. It’s a normal Return on Investment (ROI) calculation which, in the context of machine learning, weighs the generated value against the cost of mistakes and accuracy. So instead of asking “How do we get 100% accuracy?”, the right question is “How do we maximize ROI?”

Determining the expected returns is quite straightforward. I usually begin opening up the business case for machine learning implementation by weighing the benefits against the potential costs in mathematical terms. This can be formalized in an equation which basically says “What’s left of the generated value after the cost of mistakes is accounted for?” Solving this simple equation allows us to estimate the profits for different scenarios.

Let’s look at the variables:

• returns : Generated net value or profit per prediction
• value : The new value generated by every prediction (e.g. assigning a document to the right category now takes 0.01 seconds instead of 5 minutes, so the value is 5 minutes saved)
• accuracy : The accuracy of predictions made by the algorithm
• cost of a mistake : The additional costs incurred by a wrong prediction (e.g. it takes 20 minutes for someone to change the value which was predicted

By flipping around the equation and setting returns to zero, we get the minimum accuracy required to generate net value. This is called break-even accuracy:

The equation gets more intuitive when plotted in a graph:

So let’s say each prediction the algorithm makes saves you 5 minutes of work but it takes 20 minutes of extra work to fix a wrong prediction. We can now calculate the break-even accuracy to be 1–5/20 = 75% . Any improvement after this point brings concrete profits.

The above equation assumes us to blindly accept any prediction the algorithm makes and fix the errors afterwards. Sounds risky? We can do much better by extending the equation with confidence scores to lower the risks.

Optimizing ROI

A machine learning algorithm (done right) does not only spew out predictions, it also tells us how confident it is in every prediction. The majority of mistakes happen when the algorithm is unsure of its answer, allowing us to focus automation on the highest certainty predictions while manually reviewing the lowest few. While manual review does cost a bit of labor, it’s normally much cheaper than fixing a mistake later on.

Let’s choose a threshold which picks out 10% of the least confident predictions for manual review. The rest 90% will be handled automatically. This ratio is called confidence split . The accuracy in the high confidence bracket will now be considerably better since many of the mistakes are caught in the small unconfident bracket. This leads us to the extended equation. It says “What’s left of the generated value after the cost of mistakes and manual review are accounted for?”