The learning curve effect and the closely related experience curve effect express the relationship between experience and efficiency. As an individual or organization gets more experience at a task, he/she/it will usually become more efficient. Both concepts are a modern formulation of the old adage, Practice makes perfect.
The Learning Curve Effect
The learning curve effect states that the more often a task is performed, the less time will be required on each iteration. This relationship was first quantified in 1925 at Wright-Patterson Air Force Base in the United States, where it was determined that every time aircraft production doubled, the required labour time decreased by 10 to 15 percent. Subsequent empirical studies from other industries have obtained 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.
The Experience Curve Effect
The experience curve effect is broader in scope than the learning curve effect encompassing far more than just labour time. It states that the more often a task is performed, the lower will be the cost of doing it. The task can be the production of any good or service. Each time cumulative volume doubles, value added costs (including administration, marketing, distribution, and manufacturing) fall by a constant and predictable percentage. This broader effect was first noticed in the late 1960’s by Bruce Henderson at the Boston Consulting Group (BCG). Research by BCG in the 1970’s observed experience curve effects for various industries that ranged from 10 to 25 percent.
These effects are often expressed graphically. The curve is plotted with cumulative units produced on the horizontal axis and unit cost on the vertical axis. A curve that depicts a 15% cost reduction for every doubling of output is called an 85% experience curve, indicating that unit costs drop to 85% of their original level .
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