AI’s “Cost of Mistakes” is Finally Coming Back in Real Currency

Leaving it to AI is fast, cheap, and easy. That is a fact. However, the bills for “what happened as a result of leaving it to AI” have started arriving worldwide.

An AI agent deleted an entire production database. A Chinese court ruled that “dismissals based on AI are illegal.” In South Africa, AI-generated misinformation forced a policy reversal.

All of these are real examples from 2025. Moreover, the damages range from millions to tens of millions of dollars. Behind the facade of “cost reduction through AI” lurk three hidden costs: accidents, lawsuits, and reputational damage.

For small and medium-sized enterprises (SMEs), this is not just someone else’s problem. Large corporations can absorb losses of hundreds of millions of yen. However, if the same thing happens to a company with 30 employees, it could be game over in an instant.

In this article, we will break down these three cases with specific figures and present criteria for “what SMEs should entrust to AI agents and what they should not.”

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1. Accident Costs: The Case of an AI Agent Deleting the Entire Production Database

What Happened

A developer using the AI code editor “Cursor” instructed the AI to “organize unnecessary test data.” The AI agent “misinterpreted” this instruction and deleted the entire production database. Not only test data but also customer data, transaction history, and all configuration information vanished.

These types of AI agents autonomously decompose user instructions and execute multiple steps automatically. In other words, they “do not stop midway.” By the time a human noticed, it was already too late to recover.

Breakdown of Costs

According to reports, the estimated damage is about $5 million (approximately 700 million yen). However, this figure only accounts for the direct costs of data recovery and system reconstruction. In reality, the following indirect costs would also be incurred:

• Data recovery and reconstruction costs: Restoring from backups and manually compensating for missing data. Even for SMEs, outsourcing could cost several million yen.
• Lost profits due to business interruption: While the database is down, services stop. If daily sales are 1 million yen, a three-day halt would result in a loss of 3 million yen.
• Customer attrition costs: The likelihood of customers returning after being told “your data has been lost” is low. When calculated using LTV (customer lifetime value), losses could reach several tens of millions of yen.

Lessons for SMEs

The key question here is whether to grant AI agents write/delete permissions in the production environment.

The answer is clear: do not grant such permissions. At least not at this point.

AI agents do not perfectly understand the “intent of instructions.” Even if a human intends to say “delete test data,” the AI might interpret it as “delete data.” This discrepancy can be fatal.

The specific countermeasures are simple:

• Do not grant AI agents access to the production environment. Limit them to staging (test) environments only.
• Ensure that all deletion and update operations go through a human approval process. This is known as “Human-in-the-loop.”
• Automate backups and take them at least daily. This is a basic practice that many SMEs neglect.

An investment of 3 million yen in AI leading to a loss of 700 million yen. No one wants that ROI.

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2. Litigation Costs: Chinese Court Rules “AI-Based Dismissals” Illegal

What Happened

A company in China dismissed employees citing automation due to AI implementation as the reason. The dismissed employees filed a lawsuit, and the court ruled that “substituting work with AI is not a valid reason for dismissal,” ordering the company to pay damages.

This is not just the story of one company. With this ruling, Chinese courts have placed a legal brake on the simplistic equation of “AI implementation = workforce reduction.”

Breakdown of Costs

The compensation amount in the ruling is publicly estimated to be in the hundreds of thousands of yuan (several million to tens of millions of yen), but the real costs go beyond that.

• Litigation response costs: Legal fees and internal labor for handling the case. Even SMEs should prepare for costs ranging from 2 million to 5 million yen per case.
• Ripple effects of the ruling: The risk of similar lawsuits from other employees. If 10 are dismissed and 5 sue, the costs multiply by five.
• Increased hiring costs: The reputation of being a “company that cuts employees using AI” will negatively impact the hiring market.

Lessons for SMEs

A similar structure could occur in Japan as well. Article 16 of the Labor Contract Act invalidates dismissals that lack objectively reasonable grounds and are not considered socially acceptable. There is no guarantee that “because AI can replace them” will be recognized as a valid reason.

In the first place, the purpose of SMEs implementing AI should not be to “cut jobs.” It should be to increase productivity per person due to a shortage of staff. This should be the original motivation.

In fact, the SMEs we support have seen success not in cases where they “reduced staff with AI,” but in those where “the processing capacity per person tripled with AI.” Monthly report creation that took 20 hours was reduced to 3 hours. With the saved 17 hours, that employee could now handle new customer inquiries.

AI is not a tool to replace humans; it is a tool to amplify human output. Misunderstanding this design philosophy will result in receiving a bill in the form of litigation costs.

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3. Reputational Damage Costs: AI Misinformation in South Africa Forced Policy Reversal

What Happened

In South Africa, AI-generated misinformation spread primarily through social media, leading to a strong backlash against government policies. As a result, the government was forced to retract the policy in question. Subsequent investigations revealed that much of the information that fueled the backlash was AI-generated fake news, but it was too late. Once lost, trust and retracted policies cannot be restored.

Breakdown of Costs

The economic loss from the policy reversal is estimated to be in the tens of millions of dollars. However, what stands out in this case is the asymmetry between the “generation cost” and the “damage cost” of AI misinformation.

• Cost of generating misinformation: Almost zero. Just a few minutes with tools similar to ChatGPT.
• Damage cost from misinformation: Tens of millions of dollars + loss of government credibility + social unrest.

This asymmetry applies directly to businesses as well.

Lessons for SMEs

SMEs face two risks:

The first is the risk of becoming a victim. Competitors or disgruntled customers can generate and spread misinformation about the company using AI at almost no cost. What if false reviews generated by AI appear when searching for your company name on Google? For local SMEs, word of mouth and credibility are lifelines.

The second is the risk of becoming a perpetrator. Using AI in your own marketing and information dissemination without fact-checking. AI can easily fabricate information (hallucination). If an AI-generated statement claims, “Our product is certified by the Ministry of Health, Labor and Welfare,” and you publish it as is, it violates the Premiums and Representations Act.

The countermeasures are modest but essential:

• Always have a human fact-check AI-generated content before publication.
• Pay special attention to numbers, proper nouns, and legal expressions. These are areas where AI is most likely to make mistakes.
• Regularly monitor AI-generated information about your company. Google Alerts can suffice; just start building a system.

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Three Things SMEs Should Do Starting Today

Based on the three cases discussed, here is a checklist for SMEs when using AI agents regarding authority design.

① Do Not Grant Permissions for Destructive Operations

If granting AI agents permissions for “deletion,” “updating,” or “sending,” always include a human approval step. Starting with read-only access is a golden rule.

Cost Perspective: Building an approval flow using no-code tools (like Zapier) can cost a few thousand yen per month. The recovery cost from a full database deletion can range from several million to hundreds of millions of yen. It is clear which is cheaper.

② Do Not Make Decisions Regarding People Based on AI Judgments

Do not use AI outputs directly for decisions related to hiring, dismissals, evaluations, or placements. AI should only serve as an organizer of judgment materials. The final decision must be made by humans.

Cost Perspective: The average settlement for wrongful dismissal lawsuits in Japan ranges from 3 million to 10 million yen. Including legal fees, it could total 5 million to 15 million yen per case. This amount could wipe out an SME’s annual profit.

③ Place Checkpoints at the “Exit” of AI-Generated Content

All AI-generated content that goes outside (emails, social media posts, press releases, web pages) must undergo final human verification.

Cost Perspective: The time spent on fact-checking is about 10 to 30 minutes per piece. At an hourly rate of 500 to 1,500 yen, the recovery cost from reputational damage due to AI misinformation can be hundreds to thousands of times higher.

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Conclusion: The Cost of “Mistakes” is Higher Than the Cost of AI Implementation

The costs of implementing AI tools have dramatically decreased. There are numerous AI agents available for just a few thousand yen per month. However, we have entered an era where the relative magnitude of the cost of mistakes stands out as the implementation costs have decreased.

An AI tool costing 5,000 yen per month can lead to a 5 million yen lawsuit. An AI agent costing 10,000 yen per month can cause a 700 million yen data loss. Understanding this asymmetry will determine the success or failure of AI utilization.

For SMEs, AI can undoubtedly be a weapon. However, weapons need safety mechanisms.

Decide first on “what not to entrust to AI” rather than “what to entrust to AI.”

This is the most important design principle for AI utilization in 2025.