In Table 18-1, we could have replaced the man-hours per production unit with the cost per production unit. It is more common to use man-hours because exact costs are either not always known or not publicly disclosed by the firm. Also, the use of costs implies the added complexity of considering escalation factors on salary, cost of living adjustments, and possibly the time value of money. For projects under a year or two, costs are often used instead of man-hours.

These types of costs are often referred to as value-added costs, and can also appear in the form of lower freight and procurement costs through bulk quantities. The value-added costs are actually cost savings for both the customer and contractor.

The learning curve was adapted from the historical observation that individuals performing repetitive tasks exhibit an improvement in performance as the task is repeated a number of times. Empirical studies of this phenomenon yielded three conclusions on which the current theory and practice are based:

• The time required to perform a task decreases as the task is repeated.

• The amount of improvement decreases as more units are produced.

• The rate of improvement has sufficient consistency to allow its use as a prediction tool.

The consistency in improvement has been found to exist in the form of a constant percentage reduction in time required over successive doubled quantities of units produced.

It's important to recognize the significance of using the learning curve for manufacturing projects. Consider a project where 75 percent of the total direct labor is in assembly (such as aircraft assembly) and the remaining 25 percent is machine work. With direct labor, learning improvements are possible, whereas with machine work, output may be restricted due to the performance of the machine. In the above example, with 75 percent direct labor and 25 percent machine work, a company may find itself performing on an 80 percent learning curve. But, if the direct labor were 25 percent and the machine work were 75 percent, then the company may find itself on a 90 percent learning curve.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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