The Learning Curve
MANAGEMENT ACCOUNTING APPLICATIONS
The learning curve: from aircraft to spacecraft? instructions, the components, and how to assemble them. In addition, you may also lack confidence in your ability to produce an acceptable product. The second one, however, will take you less time, as you will be more familiar with the instructions, the components, and the assembly procedures. You will also be confident of your ability to assemble this product. The third one will take even less time, as you will have learned from your earlier mistakes and determined more efficient assembly procedures. That is the learning effect. complete tasks in space etc. The phenomenon observed by Wright and Crawford is now being used for extra terrestrial activities!
This article on the learning curve: • explains the learning effect; • identifies sectors where it can be used; • explains how it is calculated; • explains, with examples, how it can be used for planning, control and decision-making; • discusses the other factors that have to be considered in relation to its use.
Learning curve model
Wright observed that the cumulative average time per unit decreases by a fixed percentage each time cumulative production doubles over time. The following table illustrates this effect: Cumulative output 1 unit 2 units 4 units 8 units Cumulative time 1,000 hrs 1,800 hrs 3,240 hrs 5,832 hrs Average time 1,000 hrs 900 hrs 810 hrs 729 hrs
Cost reduction tool?
It is important to appreciate that the learning curve is not a cost-reduction technique since the rate of future time reduction can be predicted accurately by the learning curve model. Cost reduction only occurs if management action is taken, for example, to increase the rate of time reduction by providing additional training, provision of better tools etc. The learning effect occurs because people are inventive, learn from earlier mistakes, and are (generally) keen to take less time to complete tasks, for a variety of reasons. It
The learning curve: from aircraft to spacecraft? instructions, the components, and how to assemble them. In addition, you may also lack confidence in your ability to produce an acceptable product. The second one, however, will take you less time, as you will be more familiar with the instructions, the components, and the assembly procedures. You will also be confident of your ability to assemble this product. The third one will take even less time, as you will have learned from your earlier mistakes and determined more efficient assembly procedures. That is the learning effect. complete tasks in space etc. The phenomenon observed by Wright and Crawford is now being used for extra terrestrial activities!
This article on the learning curve: • explains the learning effect; • identifies sectors where it can be used; • explains how it is calculated; • explains, with examples, how it can be used for planning, control and decision-making; • discusses the other factors that have to be considered in relation to its use.
Learning curve model
Wright observed that the cumulative average time per unit decreases by a fixed percentage each time cumulative production doubles over time. The following table illustrates this effect: Cumulative output 1 unit 2 units 4 units 8 units Cumulative time 1,000 hrs 1,800 hrs 3,240 hrs 5,832 hrs Average time 1,000 hrs 900 hrs 810 hrs 729 hrs
Cost reduction tool?
It is important to appreciate that the learning curve is not a cost-reduction technique since the rate of future time reduction can be predicted accurately by the learning curve model. Cost reduction only occurs if management action is taken, for example, to increase the rate of time reduction by providing additional training, provision of better tools etc. The learning effect occurs because people are inventive, learn from earlier mistakes, and are (generally) keen to take less time to complete tasks, for a variety of reasons. It
References: and further reading DRURY, C. (1996): Management and Cost Accounting, International Thomson Business Press, pp.687- 691 DUGDALE, D., KENNEDY, A., SUGDEN, K. and SCARLETT, R. (1996): Management Accounting Applications: Practical Elements, pp.61-66 KENNEDY, A. and SUGDEN, K. (1996): Management Accounting Applications: Knowledge, pp.37-41 NASA http://www,jsc. nasa.gov/bu2/learn.html UPCHURCH (1998): Management Accounting: Principles and Practice, pp.78 - 85, Pitman Other factors Decision-making While a great deal has been written about the use of the learning curve for control purposes, this technique can also be used to determine costs for potential contracts in sectors which exhibit the learning effect. For example, Above & Beyond Ltd, which produces high-technology guidance systems, is preparing a tender for the Aurora project, the new generation of space shuttles. The guidance systems for the Aurora project will be very similar to those recently supplied by the company for the Dark Star project, experimental Stealth aircraft The calculations for the Aurora project assumed it was possible to continue down the learning curve from the learning obtained in respect of the Dark star project. This might not be a realistic starting point, however, as it may be necessary to take account of the following factors: • the guidance system for the Aurora project may have to be modified for the shuttles since they have, for example, a different airframe; • the work teams may be different from those used for the Dark star project; • the time lapse since the completion of the Dark Star project.