AI in the mid-market

AI terms, simply explained

From hallucination to quantisation, the terms around local AI, explained for decision-makers in manufacturing companies.

Abstract knowledge network in navy and cyan of connected term nodes

As you read through the other pages in this area, you will come across a few technical terms. Here they are explained briefly, sorted by topic and with an everyday image, so that no word gets in the way.

This page explains the terms you encounter in the other articles of this area. Sorted by topic, not alphabetically, because related terms are more understandable together.

Five comparisons that carry the rest

Parameter

The figure 7B or 24B describes how many adjusting screws a model has. More adjusting screws mean more knowledge and finer answers, but also more space required. Comparable to the question of how many tools stand in a workshop. More tools mean more possibilities, but also a larger hall.

Quantisation

The model is stored at a coarser resolution, similar to a photo with lower colour depth. It looks almost the same but needs half the space. At usual settings the loss of quality is not noticeable for most tasks.

Context window

This much text the model can survey at once. Comparable to a desk: what does not fit on it cannot be taken into account in the answer. A model with a large context window reads a complete specification in one pass, a small one only individual chapters.

Document-based answer

Instead of letting the model answer from memory, you present it with the matching pages from your own archive. Like a clerk who looks in the file instead of guessing. That is the most effective lever against invented answers.

Determinism

A calculator always delivers the same result for the same input. A language model not necessarily, because many small computing steps run in a different order depending on load. This can be enforced technically, but it costs speed.

Models and basic terms

Language model (LLM)

A program that understands and generates texts because it has learned patterns from very large amounts of text. The basis of all applications described here.

Open weight

The finished trained file is freely downloadable, the training path is not disclosed. You can operate the model yourself, but not fully trace it.

Open source

Stricter definition, in which use and distribution are also unrestrictedly free. Many models advertised as open do not meet this.

Token

The smallest text unit a model processes. Roughly corresponds to a syllable. Context windows are stated in tokens.

Mixture of Experts (MoE)

The model activates only part of its building blocks per task. Saves computing time, but not memory. A common miscalculation in hardware planning.

Instruct model

Trained to follow instructions. First choice for summaries and evaluations of existing documents.

Reasoning model

Thinks in intermediate steps before answering. Good at calculating and weighing up, worse at pure summarising.

Multimodal

Processes text and image together. Necessary when fault images from quality assurance are to be evaluated.

Finetuning

Retraining with your own examples. Makes a model fit your technical language, but requires data and effort.

Operation and hardware

Inference

The ongoing operation, that is, the answering of requests. The cost block after acquisition.

VRAM

The working memory on the graphics card. Determines which model size loads at all.

Unified memory

With Apple, shared memory for processor and graphics unit. Allows large models on a single device.

Memory bandwidth

How fast data is read from memory. Determines the response speed more strongly than pure computing power.

Ollama

Simple program for downloading and running models. The usual entry point.

vLLM

Server software for high throughput and many simultaneous users. Necessary as soon as several departments access it.

GGUF

File format for downloaded models. Appears in the file name and shows the quantisation level.

Docker, container

Packaging that isolates an application together with its environment. Standard for productive operation.

WSL2

Linux environment within Windows. Recommended way if you operate productively under Windows.

Foundry Local

Microsoft's solution for local language models under Windows. Obvious if Windows Server is in use anyway.

Hugging Face

Central platform on which models are published. The source for original files.

Quality and reliability

Hallucination

The model invents plausible-sounding but false statements. The biggest quality risk in operation.

Grounding

The model may answer only from presented documents. The most effective countermeasure against hallucinations.

RAG

Procedure that searches for matching document passages and presents them to the model. Makes answers verifiable because the source reference comes with them.

Vector database

Store that finds documents by content similarity, not by keyword. Finds the right passage even with different wording.

Embedding

Conversion of text into numbers so that similarity becomes calculable. Technical basis of the document search.

Temperature

Control for the randomness of the answer. Low for facts, higher for draft texts.

Seed

Starting value for the randomness. Helps with repeatability, but does not guarantee it.

Benchmark

Standardised comparison test. Useful for pre-selection, does not replace a test with your own data.

Law and security

Apache 2.0

Permissive licence that requires only attribution and the disclosure of changes. The most uncomplicated case, even when passing on to customers.

Community licence

Manufacturer's own licence with additional conditions. Can be changed later, that is the actual risk.

GDPR

European data-protection law. Largely defused technically in local operation, because no processor arises.

EU AI Act

European AI law. Applies independently of the licence and requires different documentation depending on the risk class.

Risk class

Classification of an application under the EU AI Act into prohibited, high, limited or minimal. Determines the documentation effort.

NIS2

EU set of rules on cybersecurity, applicable law in Germany since December 2025. Affects, among others, mechanical engineering above a certain company size.

Prompt injection

Hidden instruction in a document that the model adopts. Relevant as soon as you automatically evaluate external documents.

Membership inference

Inference of whether a particular document is in the system. A confidentiality risk with sensitive holdings.

Zero trust

Principle of trusting no access without a check. Expressly recommended for language models by the BSI and the French ANSSI.

Least privilege

Everyone gets only the rights they need. Must be implemented in the data layer, not in the model.

Network segmentation

Separation of the network into sealed-off areas. Prevents the AI system from becoming a bridge between office and production.

Next step

Where the lever is for you

A free first conversation of about an hour. We clarify whether there is a lever for you and what a first step looks like that fits the current budget. You commit to nothing further.