Law of Diminishing Returns

What is it?
French economist Anne-Robert-Jacques Turgot (1727-1781) is credited with creating an early formulation of The Law of Diminishing Returns. It teaches us that for most systems as additional effort is expended, the rate of return on that additional effort slows down. In other words, the slope of the reward versus effort curve flattens as additional effort is expended. This is illustrated in Figure 1.




Figure 1. The law of diminishing returns and the principle of Good Enough.

Why is it important?
The figure shows that at an effort level of E0, the system has a minimal level of benefit, and that there is a theoretical limit where 100% of the achievable benefit occurs. The figure also shows the important “Good Enough” point. At this point, the system has the minimum level of benefit required to meet customer needs. Notice that at some point, the amount of benefit that results from additional effort is reduced.

Tell me more!
The concept of good enough is important and should be discussed in more detail. Although additional effort beyond the good enough point offers increasingly less benefit, it is often tempting to continue to expend effort to achieve even greater benefit. However, the system engineer must know when it makes sense to continue to expend effort and when it makes sense to stop or slow down effort. It is also important to remember that stopping effort at the good enough point is not settling for second best. Rather it is taking the big picture view and understanding when effort no longer needs to be expended. The law of diminishing returns and the concept of Good Enough must be managed by the systems engineer.

Source
A. Kossiakoff, W.N. Sweet, S.J. Seymour, S.M. Biemer, Systems Engineering Principles and Practice (Hoboken, NJ: John Wiley & Sons, 2011).

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