2016-12-11 00:00:00 Running a Business English Understand how the learning curve works and how mastering its application can help your business with training employees and financial... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/03/Two-men-review-learning-curve-and-blueprints-on-job-site.jpg https://quickbooks.intuit.com/ca/resources/business/how-improvement-occurs-understanding-the-learning-curve/ How Improvement Occurs: Understanding the Learning Curve

How Improvement Occurs: Understanding the Learning Curve

2 min read

What is a learning curve in business? The learning curve depicts how the relationship between output and cost changes as your employees become more efficient at their jobs. You can use learning curves to compare employee improvement to expectations, forecast future costs, and measure production efficiency.

A standard learning curve is its steepest in the early stages and then it flattens out over time as your employees approach their full potential. Mastering the principles of the learning curve allows you to increase your forecasting accuracy and come up with more efficient employee onboarding methods.

How the Learning Curve Works

The learning curve measures cost per unit of output over time. With a new employee, the cost to produce each unit of output is often higher, as an inexperienced worker is less efficient and tends to take longer to perform a task. As employees gain experience, they learn to do their jobs more efficiently. Consequently, the time and cost to produce each unit of output decreases.

A commonly used learning curve is the 80% curve. This model stipulates that each time output doubles, the cost for the second batch of output is 80% of the cost of the first batch. In other words, the company enjoys 20% cost savings from increased efficiency due to the learning curve. Because of the law of diminishing marginal returns, each doubling of output becomes significantly more difficult to achieve.

Depicting the Learning Curve on a Graph

To depict the learning curve on a graph, plot the cost per unit on the Y-axis and total output on the X-axis. The resulting curve is steeply downward-sloping at the beginning and flattens out over time, which reflects the fact that people tend to amass the most knowledge during the early stages of learning a new task.

Think of it like running a mile for time. If you’re an untrained runner and you’re just getting off the couch for the first time in years, it might take you 13 minutes to run a mile. With three months of hard training, it’s feasible to get your time down to 10 minutes. An additional three months of training is unlikely to reduce your time to seven minutes. Reducing your time requires you to train longer and harder, since improvements come more slowly as you get closer to your full potential.

Applying the Learning Curve

The learning curve applies to most businesses, especially those that require employees to perform repetitive tasks that rely on a particular skill set. Construction, computer programming, and bookkeeping are all fields where the learning curve decreases cost per output over time.

Understanding how the learning curve affects your business can help you forecast future costs as they relate to production output. It can also facilitate improving training methods. Over time, you can measure which training strategies hasten the learning curve and result in faster cost savings and focus on these methods when you hire new employees.

Ready to even out your employees’ learning curves? QuickBooks can help. QuickBooks Self-Employed app helps freelancers, contractors, and sole proprietors track and manage business on the go. Download the app.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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