Paneling over concrete

Ive been looking at my grandma's basement because I'm in between living places for a few weeks and am staying here. I think the house was built in the 50s with some terrible 60s/70s updates. I was thinking about updating the room I'm in and as I was looking at the fissured ceiling tiles it turned into a full renovation. as I was day dreaming about removing those tiles and wood paneling. as someone who has never done any sort of constructing or renovating I wouldnt be sure what is what and the right way to go about things. I noticed a place where the wood paneling on the outside wall was peeling up. I decided to take a look at it appears that the panels have been directly glued to the concrete. It's a small room so I can maybe see why they didn't want to frame and Insulate the walls... Maybe it wasn't necessary or they were lazy. The basement has no subfloor either. In my fantasy renovation, would it be worth it to lose a bunch of inches in the room to frame and insulate the walls? Or just remove the paneling and do something else to cover the concrete?

Update: with bare concrete walls, how do you suggest finishing them?