Learning Curves: Cost Estimation on Iteration Example
Using the concept of Learning Curves for Estimating consider the following scenario and respond to each question:
Suppose that you are the estimator who is assigning costs to a major project to be undertaken this year by your firm, Acme Software Developers. One particular software development process involves many labor-hours, but the work is highly redundant. You anticipate a total of 100,000 labor-hours to complete the first iteration of the software development process and a learning curve rate of 80%. Assume you are going to use the cumulative average time in your calculations to determine the time it takes for each iteration. You are attempting to estimate the cost of the tenth iteration of this repetitive process.
Based on this information and a $60 per hour labor rate, what would you expect to budget as
A. The cost of the tenth iteration?
B. The cost of the twentieth iteration?
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Using the Learning Curve Formula Y = aXb Where Y is the cost for the nth unit or task a is the cost for the first unit or task X is the cumulative number of units or tasks produced or completed b is the learning curve coefficient, which indicates the rate of improvement (expressed as a negative).
Get the labor hours for the 10th iteration
100,000 x 10-0.3219 = 47,654.07 Hrs
Total Cost = 47,654.07 x 60 = $2,859,244.20
A. The cost of the twentieth iteration?
Get the labor hours for the 12th iteration
100,000 x 12-0.3219 = 44.937.77 Hrs
Total Cost = 44.937.77 x 60 = $2,696,266.45
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