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What is a learning curve?
This is a simple explanation of learning curve theory related to the comments on "Equation of a learning curve".
Learning curve - a graphic representation of the fact that, in repetitive activities, there is a constant and predictable rate of productivity improvement each time the number of units produced is doubled. Therefore, the learning curve is function that shows how labor-hours per unit decline as units of production increase.
There are two assumptions to estimate declining rate of labor-hours per unit (and hence labor-cost per unit):
First assumption:
1. Cumulative average time per unit is reduced each time production doubled by a certain percentage.
If it takes 100 hours to produce 1 unit, then (for 80% learning curve) cumulative average time per unit for producing 2 units is 100-20%=80 hours. Then total time to produce 2 units is 80*2=160 hours. Hence, the second unit requires only 160-100=60 hours.
Example 1:
Units Total labor cost
10 $120
20 $192
Let's find the learning rate:
Cumulative average cost per unit for 10 units is 120/10=12;
Cumulative average cost per unit for 20 units is 192/20=9.6;
Let learning rate is x:
12*x=9.6
x=0.8 (or 80%)
Hence, this company experienced 80% learning curve according first assumption.
Second assumption:
2. Incremental unit time (time to produce the last unit) is reduced by a certain percentage when production doubled. If it takes 100 hours to produce 1 unit, then (for 80% learning curve) the time to produce the second unit is 100-20%=80 hours. Then total time to produce 2 units is 100+80=180 hours.
Example 2:
Units Total labor cost
10 $120
20 $192
Let's find the learning rate:
Labor cost to produce the first bid of 10 units is 120;
Labor cost to produce the second bid of 10 units is 192-120=72;
Let learning rate is x:
120*x=72
x=0.6 (60%)
Hence, this company experienced 60% learning curve according second assumption.
Posted by mazoo at March 25, 2005 1:10 PM
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