Right now, the tactical battles need a lot of work.  If it were just a strategic game, I'd be pretty happy with the AI.

I don't anticipate the tactical AI being super hard to do as Charles and Co. have written a ton of new APIs for me to use in it that didn't exist in WOM.

Charles and Co.?

Charles and Co.- An indie developer within an indie developer. 

When a human player starts a quest, she can gather a lot of information from the name of the quest, the description etc to assess how difficult the quest is and if the reward would be really good or not. So it's only fair that the AI gets some difficulty/reward information about quests at the same time the human player reads the descriptions.

Perhaps some AI personalities take more risks with quests, some take less.

Also, I don't know how the quest system works but if you don't want the AI to "cheat" in this sense and it is possible, the AI can use a dummy army to check if the next quest step is a difficult battle or not.

I agree with Sir_Linque about AI personalities and quests.

Some AI's might go after only high reward quests. Some might seek out champion quests to recruit or slay champions. Some might go after only easy quests; i.e. kill rats. Others may seek to complete only magic item quests or Alliance Quests (i.e. rescue my son and my fraction will ally with yours).

Allowing players to see how hard a quest is wouldn't be a horrible idea either.

What would it be?  Percentage Difficulty?  Or like Difficulty Levels - eg. Very easy, easy, average, hard, very hard, almost impossible?  (Or something like Tech Levels required?)

I'm not sure the best route yet.  I just know that losing an army led by a champion in a quest is too damaging. I need to have a better idea of whether I should go on the quest or not.

The AI can't save and reload.  That's probably what makes this so difficult, players will take risks the AI can't.

While a smarter AI that knows it's chances of beating a quest is the best answer, you could always cheat. If the AI loses the battle you could cancel it and re-spawn the army like it never happened, or at least have the champion escape the battle. Players will retreat and cheat anyway by reloading.

Perhaps one could use an estimated group/army power rating to let them/us know what the recommended min. requirements are to successfully finish a quest?  My traveling army of 1 hero, 2 archers, 4, melee for instance would have a power rating of 150ish, so I know that a quest recommending I have 200 power rating is probably doable but not without some losses, the ai could use this same type of setup in determining what to send on any given quest (perhaps they need to go half again or double the recommended power rating to help insure fewer casualties.

Very easy, easy, average, hard, very hard, almost impossible

     25      ,  65  ,    135   , 280 ,   450      ,    800?

Champions are now the main driving force behind magic. You said so yourself in an earlier post - losing a champion now is a MAJOR blow.

This is an issue that is now showing its head for the AI. It is not only a problem for quests. The AI will suffer similar blows in tactical combat. Since champions are such major components, they will be the first to die horribly when players attack.

Maybe the game needs better ways to protect our champions, period. Granted, I don't know everything in the game that can do that.

what about a specialized field plate armor that is customized for each hero/sov in the shop/blacksmith that absorbs the first melee/ranged hit per set of attacks per unit attacking

3 units attacking hero - first unit swings 3 times resulting in 1 miss, 2 hits - 1 of those hits is absorbed = 1 hit lands

                                - 2nd unit swings 3 times resulting in 2 miss, 1 hit - 1 is absorbed = no damage

                                - 3rd unit swings 3 times resulting in 0 miss, 3 hit - 1 is aborbed = 2 hits land

This wouldn't help with magic too much but then could have rings, necklaces, etc. that give so much magic resist

between the two heros/sovs would be considerably tougher

Heroes of Might & Magic had the tavern system where defeated champions always fled the battle, and were able to be hired again from the tavern, fully leveled.

If Heavenfall is right about the problem, maybe there could be a way to get champions back after defeat, for a cost? In general if losing champions is too costly, it's not going to be that fun playing when you win or lose solely on the grounds of whether you're able to keep your champs alive (and level them).

Never liked the HoMM approach of just rehiring them that kind of took some of the shine off a planned-out victory. HoMM IV had it better with heroes being imprisoned in the nearest town that you had to capture to release them. Perhaps having the same thing but then adding a Mount & blade/Pirates! style chance to escape every turn might balance it a bit. Having buildings like a prison tower could reduce the chance of escape. There should always be a chance the champion just gets killed, though. Maybe 10% for a new champion with a 5% increase of death per level, capped at 75%.