The Indirect Costs of AI

In grants, we distinguished direct costs from indirect ones. The direct cost was obvious — the program itself. The indirect costs were the unglamorous scaffolding: administration, oversight, compliance, the finance staff who kept it all legal. Ignore them and your budget was fiction.

AI has indirect costs, and almost nobody budgets for them.

The subscription is the direct cost — the number on the quote. The indirect costs are everything around it: the staff time to learn it properly, the human review of its outputs, the work of fixing its mistakes, the governance to keep it within bounds. For small businesses especially, these hidden costs can dwarf the sticker price.

Grants had a discipline for this: the indirect cost rate, negotiated up front, applied honestly. You don't need the bureaucracy — you need the honesty. Before adopting an AI tool, list the indirect costs: training, oversight, error correction, review time. Price them roughly. Then decide.

The cheapest AI tool is rarely the one with the lowest subscription. Budget like a grants officer: all-in, eyes open.

I explain frameworks; I don't give legal counsel.