Learning Curve Model (LCM) is a useful tool for lowering costs across industries. Its central idea is that cost can be reduced at a constant rate as experienced workers keep doing the same job repeatedly. There are two significant types of a learning curve: The unit curve (UC) and the cumulative average curve (CAC). While the application of the learning curve provides different outcomes for different industries, a thorough understanding of the use of the concept and how a repeated task can improve the bottom-line can help project managers or business entities across industries predict the cost of unit production overtime. How the learning curve model is relevant to project management, and if so, to what extent? This paper attempts to answer this question.
Learning Curve Concept
The idea of the learning curve was first conceived by Wright in 1936 when he discovered in the airline industry, which is also true in other sectors- that the working hours and budgeted cost required to perform a production unit can reduce due to repetitive tasks. The repeated tasks cause a significant production cost decline at a constant rate when production levels double.
The application of LCM producing cost prediction and sustaining business competitiveness is widespread, and business organizations use it for many purposes. Most business organizations use the learning curve as cost reduction techniques in unit product operation or multiunit corporate scenarios, including franchise, banking, and fast-food businesses. Compared to startup businesses, franchisees, for instance, have leverage in terms of learning from preset training programs and being efficient and productive. In other words, Learning Curve makes franchisees learn and work faster and, therefore, can reduce costs quickly through knowledge and experience gained.
There are two learning curve models: the unit curve model and the accumulative average curve. The unit curve model considers, in its calculation and cost prediction, the hours and costs used in the production of a unit of product. The basis of the unit curve is that the price per unit steadily decreases when the total quantity of units produced doubles. The rate of learning according to the Unit curve/Cumulative average curve is the constant rate by which the costs doubled quantities decrease, and cumulative total hours expended to produce units.
Project or business professionals use a mathematical model to calculate and predict these values that lessen the time experienced, and skillful employees take to perform a job over some time. The learning curve concept also measures a wide range of issues, including time and cost estimations in production operations, improving performance and cost, or risk reduction. Some dubbed learning curve models as an 80% learning curve, which asserts that the average prices of cumulative assembly declined by 20% due to duplication in the number of units. Studies show that LCM thrives in a longtime projection; unfortunately, it has its life cycle to run: it is not perpetual. Knowledge and experience acquired in the making of a unit or multiunit product may not transfer to the making of another product or service. The business environment may also limit the ability of the learning curve to modulate and establish a longtime viable learning curve along with limited experience, material scarcity, and regulations. There is also a half-life model that asserts that production cost reduction tends to grow to half as the result of decay through the natural life cycle process. In other words, the unit of the product tends to outlive its full production capacity when age and wear and tear wrest control of its ability to perform optimally. This decline in unit capability affects the essence of the Learning Curve. Other causes that impact the learning curve may include employee dissatisfaction and new technologies. The in-group fighting, power conflict, reengineering, among a host of others can affect the learning curve.
|Ratio from Old to New Experience
Source: (Kerzner, 2009, p. 824)
As figure 1 shows, cost decreases due to an increase in inexperience. Experience is doubled from 95% level reducing cost by 5 percent. Also, when experience or exposure increases three times from the 70% level, production is reduced by 43 percent.
Learning Curve Diagram
The Learning curve diagram shows how a firm can reduce the number of hours, days, weeks, months, or years as experienced employees spend less time doing work that inexperienced workers could have taken more time to do. This saves companies immense fortune as the savings accumulate over time. Learning curves is extremely useful in production planning, cost forecasting, and setting delivery schedules.
The rate of LCM in the construction industry ranges from 70 to 90 percent construction industry. Seventy percent deals with more labor-intensive, complicated situations, including the concrete structure and 90 percent learning curve in cases of placing the concrete structure. Sources of experience curve include:
Labor efficiency-As employees continue to do the same work repeatedly, they tend to experience and master it. In time, the job becomes second nature. This adds cost value to their organization in the following ways: It enhances labor productivity and efficiency, reduces performance /product lifecycle, and costs that are related to labor and upkeep of the business. It also reduces managerial control and waste. Work specialization and method improvement-The more employees become more experienced and knowledgeable, the more their ability to excel on the job. This reduces the likelihood of human error, waste associated with ineptitude, idleness, and slowness in making decisions. New production process– The use of technologies and innovations are significant sources of cost reduction and control. The establishment of new innovative approaches like statistical process control (SPC) and cybernetic control automation can reduce variability, prevent rejects, human errors, and makes it easier to identify areas of performance weaknesses. Getting better performance from production equipment-A strategic design and installation of better equipment can improve performance outputs and sustain the bottom-line. Product redesign or remodel-reengineering or redesigning, reusing, recycling, or going green can provide higher efficiency of a firm’s productive activities and reduce the operational and capital cost considerably. Incentives and disincentives-Economic slump, business relocation, change of employees from one division to another, especially if they are not satisfied with such change, can affect labor performance and productive capacity.
Will the learning curve concept affect our particular project?
Characteristics of work activities in the construction industry can be repetitious and not repetitious. In both ways, however, LCD notion that knowledge and experience level can save time and cost is embedded in project management mantra and modus operandi. The application of Enterprise Risk Management and Microsoft Project, among a host of others, constitute a significant learning curve. Compared to legacy methods used in managing projects, the application of new technology increases the corporate learning curve. Consequently, it reduces the time it would take to calculate and sequence a schedule for 100 employees manually. Like the LCM, Project Management Maturity Model (PMMM) model focuses on continuous learning and improving performance throughout the project management lifecycle aimed to sustain business objectives. The Project Management Maturity Model incorporates a high level of understanding of not only PMBOK Knowledge Areas but also other domains such as soft skills, technology, and project management environmental domains. The concept believes that the failures of projects across industries worldwide are a lack of understanding and application of the high level of project management maturity level, as shown in figure 3.
Level 1 necessitates the need to understand project management concepts and terminologies. Level 2 lays out plans to apply project management templates, processes, tools, and techniques in the organization. At level 3, the organization attempts to create a unique project management methodology and apply it in their business environment. At level 4, project management practitioners set benchmarks through contrasting best practices and adopting standards that are realistic, scalable, and customizable. At level 5, project leaders evaluate the process of benchmarking and apply the best to their own chosen methodology. The costs that are associated with a project’s failure to meet its goals due to inadequate training in PMBOK Knowledge Areas include the loss of long-term profits and competitive edge and waste of time and resources, to name a few. That is why advanced leadership training in project management is essential.
The seasonal nature of most projects, including those in the construction business, makes it untenable if not impractical to establish the foundation or framework required to calculate the benefits of cost savings mathematically and to predict future cost structure from repetitive tasks. Studies show that the learning curve model works better in an organization that provides repetitiousness of identical work activities continuously.
The potential effect of learning curves on project efficiency
There are positive and negative effects of the learning curve on project efficiency. Labor efficiency is one of the positives. The more employees learn to operate tasks, the less the time to perform and complete those tasks repeatedly. Learning or advanced training also decreases management supervision, waste, and inefficiency. Labor efficiency also includes other staffers in divisions such as manufacturing, marketing, procurement, sales, and administration, to name a few. Excellent management styles and actions, corporate culture, organization structure, technology, capital investment, and engineering are positive effects on the Learning Curve. The adverse effects include layoffs, lack of competent supervisors, workforce, instability, loss of contract, or hiatus between contracts, and economic downturn. Interminable conflicts and social upheavals, strikes, remodeling, reengineering activities can disrupt the learning curve and decrease the time of production rapidly.
The decline in age, strikes, and continued social unrest among a host of others can negatively impact the Learning Curve theory. Thus, instead of a production unit reducing the time it takes to perform an hour of work to 30 minutes, as the task is repeated over time, age
decline, and its debilitating effect on the body can reverse the learning curve. Other factors that can affect the learning curve cost decline are as follows: total quality control issues, disruption of a machine, and employee decrease in performance due to age, environmental constraints, and motivational factors. Additionally, lack of quality can generate dissatisfaction among customers, including a businesses’ reputation, and consequently, customers’ turnovers or loss can also affect the learning curve. Irrespective of the high level of a learning curve, the high-cost car manufacturers pay due to lack of quality control is enormous. Disruption in the production run due to lethargy, use of legacy machines or technologies can cause a company to lose its competitiveness, profitability, and unsustainable growth. Disruption can also be caused by manufacturing breaks, which could cause a significant delay in the constant flow of productivities and manufacturing activities. It constitutes a considerable cost management problem if the situation remains resolved quickly. The processes of transitioning from old to new, reengineering, remodeling, acquisitions, relocation of business headquarters, reassigning employees to the different departments are also disruptions to the learning curve’s continuous process of cost reduction. Hygiene and motivation factors, including employee dissatisfaction due to bad organizational policies, quality of leadership at the helm, working environment, salary, relationship with workmates, and bosses can also hinder or decelerate the rate at which employees perform their jobs.
The learning curve model saves enormous cost over some time when experienced workers do the same job over again. In a stable work milieu, especially in the manufacturing sector, unit curve and cumulative average curve can sustain a business cost-saving measure for a long time. LCM is not, however, without side effects. The system or workers can vitiate or lose vitality. When that happens, time the ability of workers, or the system to repeat activities can disrupt.
Anzanello, M. J., & Fogliatto, F. S. (2011). Learning curve models and applications: Literature review and research directions. International Journal of Industrial Ergonomics, 41, 573-583. doi:10.1016/j.ergon.2011.05.001
Jaber, M. Y., & Guiffrida, A. L. (2007, May 26). Learning curves for imperfect production process with reworks and process restoration interruptions. European Journal of Operation Research, 189, 93-104. doi:10.1016/j.ejor.2007.05.024
Johnson, S. K., Garrison, L. L., Broome, G. H., Fleenor, J. W., & Steed, J. L. (2012). Go For the Goal(s): Relationship Between Goal Setting and Transfer of Training Following Leadership Development. Academy of Management Learning & Education, 11, 555.
Ofori, D., & Deffor, E. W. (2013, November 7). Assessing project management maturity in Africa: A Ghanaian perspective. International Journal of Business Administration, 4, 41-61. doi:10.5430/ijban6p41