Forgetting and Knowledge Depreciation

Organizational forgetting (or alternatively, knowledge depreciation) occurs when knowledge is lost during a break in production. Argote and Epple (1990) note: “Knowledge could depreciate because individual employees forget how to perform their tasks or because individuals leave the organization and are replaced by others with less experience” (Argote and Epple 1990, p. 922). The concept of organizational forgetting is relevant to the present study because of both the long-term hiatus in nuclear construction in the United States and the potential for short-term interruptions should construction resume.

Argote and Epple summarize the literature on knowledge depreciation in

manufacturing; none specific to construction was found. They cite one study in which unit costs were higher after a break such as a strike, and another study that found “recent output rates may be a more important predictor of current production than cumulative output” (Argote and Epple 1990, p. 921). Argote and Epple also cite Lockheed’s experience with the L-1011 Tri-Star as an example of knowledge depreciation: after a period of low production of the Tri-Star, Lockheed’s costs were higher than when production first began.

Knowledge depreciation is relevant to near-term nuclear construction in the United States in so far as recent experience from overseas plant construction is not perfectly

transferable. If the overseas experience were not transferable at all, the only experience the U.S. industry possesses would be from 1970s-1980s era construction. No literature was found on international transfer of construction learning. Knowledge depreciation also should be considered when projecting future learning rates: if construction is sporadic, learning effects will suffer.

4.9. Conclusion

The evidence from international nuclear construction implies that standardization increases learning effects. The evidence from U.S. nuclear construction history, especially when compared with overseas construction, implies that unpredictable regulation reduces potential for learning. Moreover, the literature on knowledge deprecation implies that construction stoppages impair learning by doing. The extent to which the U.S. nuclear construction industry is competitive is especially important: the significant difference between in-house and agent-managed learning rates implies that incentives to reduce costs (as from competition) are a catalyst for learning by doing to exist—or at least affect where the savings go.

Based on the literature with its mixed results and the considerations of Chapter 3, a reasonable range for future learning rates in the United States nuclear industry is 3 to 10 percent. The upper part of this range is reasonable if nuclear plants are standardized, if the regulatory environment is stable, if the nuclear plant construction industry is competitive, and if engineering teams and construction crews are kept more or less continuously employed. The lower part of the range is more reasonable if the number of units that can be built at a single site is limited, and construction across sites is discontinuous.

In light of the empirical evidence, a conservative learning rate is 3 percent. It is appropriate for a scenario in which regional demand for new capacity is sufficiently saturated that only a single new 1,000 MW reactor could be built at a facility. Orders are spaced apart by a year or more, allowing engineering teams and construction crews to be reassigned. Orders are allocated among several types of reactor, spreading experience across different technologies. Some construction delays allow dispersal of personnel. The structure of the construction market lets construction firms retain a large proportion of cost savings from learning as profits rather than passing them on to the buyers.

A medium learning rate is 5 percent. It is appropriate for a scenario featuring more or less continuous construction, but not necessarily many cases of sequential units built at a single facility. A narrower array of reactor designs would be built, and competition in the construction industry would cause more of the cost reductions from learning to be passed on to buyers. Construction delays would be uncommon.

An aggressive learning rate would be 10 percent. A continuous stream of orders would keep engineering teams and construction crews together and there would be more instances of building multiple reactors at the same site. Several reactor designs might be

deployed, but each in sufficient numbers to obtain maximal learning among all parties, from manufacturing through engineering and construction. Regulation would streamline

construction times, and delays would be largely eliminated.

Table 4-6 summarizes the conditions associated with different learning rates.

Table 4-6: Conditions Associated With Alternative Learning Rates

Learning Rate (Percent for Doubling Plants Built) Pace of Reactor Orders Number of Reactors Built at a Single Site Construction Market Reactor Design Standardization Regulation Impacts 3 Spread apart 1 year or more Capacity saturated, no multiple units Not highly competitive; can retain savings from learning Not highly standardized Some construction delays 5 Somewhat more continuous construction Somewhat greater demand for new capacity; multiple units still uncommon

More competitive; most cost reductions from learning passed on to buyers Narrower array of designs Delays uncommon 10 Continuous construction High capacity demand growth; multiple units common Highly competitive; all cost reductions passed on

Several designs; sufficient orders for each to achieve standardization learning effects Construction time reduced and delays largely eliminated

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Chapter 5. FINANCING ISSUES