I just read the article in Trains about Amtrak’s cost assignment. I have to admit, most of that was Greek to me. I feel that the author needed to explain much better to us non-accountants.
Having said that, my impression was that the cost accounting did seem pretty arbitrary in some cases, and it would appear that the LD trains may be getting scapegoated, and state trains also treated unfairly. At least, the author seems to feel that way, and some examples appear to bear that out.
I’ve been scratching my head over that article for 2-3 weeks.
Of course the “snow removal allocated to the Miami station” example is a perfect illustration for those who are looking for something to complain about. I’m confident that such practices are rampant throughout their system.
But even more meaningful would be to know the formulas used in fixing the allocations.
Quick illustration, Suppose they lease beaucoup office space in a very expensive part of New York, what is the fairest way for them to allocate that cost over the entire system? by route miles as a percentage that each route makes up of the entire system, or by paid-customer miles? (or other)
The first method would by definition allocate the vast majority of that cost to the long distance routes, they are in a sense a “sitting duck” with no escape.
The second method would allocate the cost more towards where the big revenue streams are coming from. My gut tells me that the Amtrak admins would like to avoid this honesty.
Of course the rub being, even if you eliminate the “costly” long distance routes, that rental cost is still going to be incurred, at least until the lease expires…So the debate about how to better manage that cost is a Trojan Horse of sorts.
Unless I missed something.
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I would like to hear what our resident accountancy expert, PJS1, has to say about the article.
“M. E. Singer is an observer and commentator on the passenger rail industry, identifying shortfalls and growth opportunities. He is currently Principal at Marketing Rail Ltd. in Chicago, a consultancy to achieve passenger rail customer experience and product branding. Singer has prior corporate experience in turnaround operations management, marketing, and mergers and acquisitions in the healthcare field.”
Like most if not all of the people who are convinced that Amtrak’s is misallocating overheads, Mr. Singer does not have access to Amtrak’s books. Moreover, it does not appear that he is a cost accountant or has any accounting credentials.
Unless an outsider has access to the company’s books, including its cost accounting policies, procedures and practices, or is a professional employee in the company’s accounting or finance departments, or is a recent former employee with these ticks, or has sat on the company’s Audit Committee or Finance Committee, he is just speculating. No one should take these guys seriously.
Cost accounting is not Generally Accepted Ac
Went through several of the Booze Allen Hamilton and Mckinsey & Co. ‘consultant’ exercises. Large comptitive companies throw out 95% of their ‘recommendations’ as being ‘pie in the sky’ and other flights of theory vs. reality. Large companies will show WHAT THEY WANT TO SHOW - especially when it comes to cost allocations (and if you don’t control the show - there is nothing you can do about it.)
Where is the evidence to support your contention? Unless you were employed by McKinsey & Co., or any other serious consulting firm, it impossible to know how many of their recommendations are accepted and implemented by their clients.
Anyone that has worked with McKinsey & Co or Booze Allen Hamilton or any top-notch consultancy - they all form teams with insiders - knows that a high percentage of their recommendations are implemented. They ought to be. The fees charged by these top notch consulting firms are very impressive.
McKinsey and Booze, as well as others, usually form teams made up of their employees and those of the client. The idea is to get the client’s members to take ownership of the recommendations that the consultants help them flesh out.
The mark of an effective outcome is when the company’s employees take ownership of the recommendations and come away from the table believing that it was their idea all along.
Perhaps if your company’s execs and managers had taken some of those recommendations seriously, instead of paying a lot of dough just to act superior and salve their weak egos, they wouldn’t have been so vulnerable to corporate raiders?
You impress me as a data driven person. If you have not already done so, you might be interested in the U.S. Census Bureau’s Subscription Program. I signed up for it. Several times a week I get an update are a variety of subjects. The most recent focuses on the top five fastest growing states.
You can read the brief or do a deep dive into the numbers if they interest you.
If the long distance routes were eliminated, where else would the overhead costs currently allocated to them be re-allocated?
Whaaaatttt? Six Sigma didn’t work???
Some companies brag about what a success Six Sigma was and all the millions they spent on it and the training was an astounding success, other companies figure out they have been had by a scam and let it disappear or fade into the background.
On the failures… Sig Sigma exclaims that the extraordinary track record of failure of their methodology to produce change is because the companies did not spend enough money on the methodology in the first place (lol).
Wall Street Journal came out pretty heavily on the side of it being a scam though.
One example of you being correct. Though I will counter that some consulting companies come in and think outside the box of regular executives and do present some decent recommendations. I would not go so far as say 95% pie in the sky but I would agree that some of what those large consulting companies recommend is garbage.
A number of acquaintences made a good living for several years each out of Six Sigma. Never saw much in the way of results from their ‘projects’.
What happens inside a company, any company, is politics - pure and simple. The CEO has his ideas and they get implemented do
If the long-distance trains were discontinued, approximately 78 percent of the expenses (labor, operating, fuel, materials, depreciation, etc.) directly attributable to them would go away. Some of them would disappear almost immediately; others could take several years.
The labor expenses, which make up at least 59 percent of the long-distance operating expenses, would be the most challenging to unwind. At the end of FY16 – latest public numbers – 4,963 employees or 29.1 percent of Amtrak’s workforce were assigned to the long-distance trains. Approximately 85 percent of them are union members.
Without access to Amtrak’s books, it is impossible to know how any residual overheads would be reallocated. But here is a possible scenario for Marketing & Sales (M&S).
M&S expenses directly attributable to the long-distance trains, i.e. employees, agency fees, ad campaigns, media buys, etc. - would go away. Eliminating staff, i.e. reassignment, attrition, etc. would be the biggest challenge. It could take several years for the severance expenses to work their way through the accounts.
Office space, personal equipment, IT support, HR support, etc. associated with a re-organized M&S function could be scaled down over time. The same for management overheads.
Some of M&S’ 1,055 employees – FY16 – probably support more than one s
Not sure I totally agree the CEO is the shot caller all the time and depends on CEO but generally rule of thumb is if you have someone on the executive team willing to openly subvert a consulting companies recommendations, it is going to happen unless the consulting company has a strong relationship with the CEO and can find a path around the subverter and get them reassigned or fired. So in that part I agree. Sometimes the consulting engagement fails.
I was on a consulting engagement where the CIO approached us and said that we needed to make his recommendation to the sales department, presented as our own recommendation… or he would see to it that we never obtained an IT contract there again. Of course like any consulting company would do…we followed the money train and kept everyone happy.
In that above scenario, if the consulting company had it’s priorities straight it would break off the consulting engagement if they did not have the proper working relationship with the executive team or could not control a member of the team that wanted to subvert the recommedations. That rarely happens though in real life.
As for McKinsey and Company…didn’t they spin off a few worthless evangilists that were former consultants? I remember IBM becomming infatuated with one named Peters or something and spending a lot of money on him…largely to no appreciable effect. Similar experience to six sigma. Mixed bag as far as that firm is concerned. I know they have this great reputation and all b
The title of the thread was: Amtrak cost accounting.
This devolved discussion about the value of consulting firms and corporate politics has nothing to do with the title nor railroading.
Cost Accounting - in a organization like Amtrak - is the accounting version of creative fiction. No outside party can prove you wrong.
I recall you (and several other railroaders) basically insisting in the past that non-railroaders should defer to your expert opinion(s) on railroad matters. Yet you and non-railroaders continue to give opinions as though they were facts about a whole slew of topics outside your realm of education, training or experience.
I don’t think any member on this forum has access to the detailed accounting methods that Amtrak uses, so even accounting professionals are working from ignorance. And it seems those Amtrak methods are not GAAP and the details are kept confidential.
The results have been widely questioned by outside parties who have attempted to dig deeper. Some of their findings raise serious questions about whether various arbitrary cost allocations are skewing the results to suit an agenda. Cost accounting is way outside my expertise, but when more qualified people from outside this group come up with questionable examples of Amtrak’s practice I think the old adage of “where there is smoke there may be fire” cannot be simply ignored.
And in a lesser degree, I’ve seen some creative work in departments within a big organisation hiding items that were not officially covered by a particular budget. The paperwork does not show it and the accountants remain in ignorance. No doubt Balt has seen it too. That creativity is not limited to the lower levels. Some large companies have shown decent results right up to the time the house of cards collapsed in utter failure.
I have made this point numerous times. Unless a person has access to Amtrak’s books, h/she does not know how Amtrak’s cost accounting policies, procedures, and practices are applied. This is everyone. This is nothing wrong with saying, I don’t know!
Amtrak is not unusual in this regard. I don’t know of any company that opens its cost accounting books to outsiders unless there is a valid reason to do so, i.e. external auditors, regulators, contactors, etc.
GAAP governs the preparation, publishing, and verification of a company’s financial statements. It does not govern cost accounting, although most auditors gain an understand of an entity’s cost accounting methods at a high level so as not to be blindsided by methods that could have a negative impact on the financials.
Most cost accountants I have known, including myself, adhere to the standards of the Institute of Management Accountants.
Unless someone with access to Amtrak’s books, or an official of the company, or an auditor, can verify that Amtrak’s cost accounting policies, procedures, and practices are inappropriate, my assumption is that they reflect reasonably the costs structures of the company
I’m not an accountant either, but even at the bottom of the food chain there are manipulations so obvious even the untrained eye can see them. The accountants may not, unless they venture outside of the office.
Hiding deadheads and recrews, blaming train delays on customers (or anyone else but yourself), and charging customers the wrong amount for switching (this could be more or less, sometimes crews end up doing extra moves and not reporting them) are just a few examples.
I don’t follow news about Amtrak’s accounting particularly closely, but it seems like I have heard a variety or reports ranging from one end of the spectrum to the other. The long-distance trains lose lots of money and the NEC is profitable, vice-versa, and everything in between.
Only one scenario is correct, so someone must be wrong. Or are they knowingly lying to serve their own interests, whatever they may be?