Learning Curve Theory

Learning Curve Theory is concerned with the idea that when a new job, process or activity commences for the first time it is likely that the workforce involved will not achieve maximum efficiency immediately. Repetition of the task is likely to make the people more confident and knowledgeable and will eventually result in a more efficient and rapid operation. Eventually the learning process will stop after continually repeating the job. As a consequence the time to complete a task will initially decline and then stabilise once efficient working is achieved. The cumulative average time per unit is assumed to decrease by a constant percentage every time that output doubles. Cumulative average time refers to the average time per unit for all units produced so far, from and including the first one made.

Major areas within management accounting where learning curve theory is likely to have consequences and suggest potential limitations of this theory.

Areas of consequence:
* A Standard Costing system would need to set standard labour times after the learning curve had reached a plateau. * A budget will need to incorporate a learning cost factor until the plateau is reached. * A budgetary control system incorporating labour variances will have to make allowances for the anticipated timechanges. * Identification of the learning curve will permit the company to better plan its marketing, work scheduling, recruitment and material acquisition activities. * The decline in labour costs will have to be considered when estimating the overhead apportionment rate. * As the employees gain experience they are more likely to reduce material wastage.

Limitations:
* The stable conditions necessary for the learning curve to take place may not be present – unplanned changes inproduction techniques or labour turnover will cause problems and affect the learning rate. * The employees need to be motivated, agree to the plan and keep to the learning schedule these assumptions may not hold. * Accurate and appropriate learning curve data may be difficult to estimate. * Inaccuracy in estimating the initial labour requirement for the first unit. * Inaccuracy in estimating the output required before reaching a ‘steady state’ time rate. * It assumes a constant rate learning factor.

Learning curve and learning curve effect

Main article: Learning curve
The experience of “learning curves” was first observed by the 19th Century German psychologist Hermann Ebbinghaus according to the difficulty of memorizing varying numbers of verbal stimuli. Subsequent learning about the complex processes of learning are discussed in the Learning curve article. The experienced learning rates for exploratory discovery and development processes, for individuals and organizations, is more the focus of the main Learning curve article. As individuals and/or organizations get more experienced at a task, they usually become more efficient at it, following a progression of the learning first getting easier and then harder as one approaches a limit. A “steep” learning curve, in colloquial usage, usually means experiencing a large and increasing amount of effort for a constant amount of learning, i.e. approaching a natural limit. Much the reverse is the meaning of a steep slope in a learning progress curve. A learning progress curve is steep when very little effort is required, as further discussed in the main article.

The rule used for representing the learning curve effect states that the more times a task has been performed, the less time will be required on each subsequent iteration. This relationship was probably first quantified in 1936 at Wright-Patterson Air Force Base in the United States[1], where it was determined that every time total aircraft production doubled, the required labour time decreased by 10 to 15 percent. Subsequent empirical studies from other industries have yielded different values ranging from only a couple of percent up to 30 percent, but in most cases it is a constant percentage: It did not vary at different scales of operation. Learning curve theory states that as the quantity of items produced doubles, costs decrease at a predictable rate. This predictable rate is described by Equations 1 and 2. The equations have the same equation form. The two equations differ only in the definition of the Y term, but this difference can make a significant difference in the outcome of an estimate.