Profitability of Training

1. Learning Curve
THE PROFITABILITY OF TRAINING
1/2/2017 FRANCISCO GUTIERREZ

2. Learning Curve Concept
In the 70's the Boston Consulting Group BCG applied the concept to the strategic direction of
companies, Showing:
•It is associated with human activities.
There are fears of the substitution of human activity by machines. Unless the machines develop artificial
intelligence, a fully automated plant will have a continuous production close to design capacity. How
explain that in 1951 the US design capacity of "fluid catalytic cracking" was 1.2 million barrels a day, but
the real production was a third higher (1.6 million)?.
•It is transferable.
If a systematic method of preserve experience and transmitting it to staff is developed, the learning curve
accelerates, particularly in the case of soft technologies (where knowledge prevails over physical
activities)
1/2/2017 FRANCISCO GUTIERREZ

3. Learning Curve in Refinery
(Hard industry)
In previous slide we said “in 1951 the real production capacity of the FCC units exceeded by a
third the design capacity”.
(see Profit from the Learning Curve by Winfred B. Hirschmann Harvard Business Review FROM
THE JANUARY 1964 ISSUE)
If the learning curve is the cause, there should be a relationship between the productivity of the
facilities and the experience (in this case the age of the facilities)
1/2/2017 FRANCISCO GUTIERREZ

4. Learning Curve in Refinery
(Hard industry)
The longer time an unit is operated, the greater profit is obtained.
In fact, a learning curve of 90% was detected (every time that the processed barrels are
doubled, costs are reduced to 90%)
1/2/2017 FRANCISCO GUTIERREZ

5. Using Learning Curve
If the experience can be transferred, what must be done to get benefit in starting operations
for a new unit? How to achieve profits as soon as possible?
Base case without transfer of external experience, the benefits are seen after one year
(55.000.000,00)
(45.000.000,00)
(35.000.000,00)
(25.000.000,00)
(15.000.000,00)
(5.000.000,00)
5.000.000,00
15.000.000,00
0 2 4 6 8 10 12 14
Accumulated benefit VS Months
1/2/2017 FRANCISCO GUTIERREZ

6. Using Learning Curve
Developing a model where we assume that the personnel, under a training plan assisted with
senior operators (with tangible experience in similar plants to the new unit), instead start their
operations from zero, they will start with only the equivalent of one month of experience (From
the beginning of operations, initiate their activities with knowledge that would have required a
month of work by the traditional method of trial and error)
1/2/2017 FRANCISCO GUTIERREZ

7. Using Learning Curve
Of course, the unit works with benefits (lowest point of the curve) a month before. But the
substantial difference is that the accumulated losses are much lower and the accumulated
benefit appears 4 months earlier?
(55.000.000,00)
(45.000.000,00)
(35.000.000,00)
(25.000.000,00)
(15.000.000,00)
(5.000.000,00)
5.000.000,00
15.000.000,00
0 2 4 6 8 10 12 14
Accumulated benefit VS Months
(45.000.000,00)
(35.000.000,00)
(25.000.000,00)
(15.000.000,00)
(5.000.000,00)
5.000.000,00
15.000.000,00
25.000.000,00
0 2 4 6 8 10 12 14
Accumulated benefit VS Months
1/2/2017 FRANCISCO GUTIERREZ

8. Using Learning Curve
How much would we be willing to invest for having in the first year 20 million dollars
accumulated VS nothing?
(45.000.000,00)
(35.000.000,00)
(25.000.000,00)
(15.000.000,00)
(5.000.000,00)
5.000.000,00
15.000.000,00
25.000.000,00
0 2 4 6 8 10 12 14
Accumulated benefit VS Months
1/2/2017 FRANCISCO GUTIERREZ