COST-ANALYSIS ENGINEERING
Definition. Cost-Analysis Engineering is that branch of Engineering which has for its object the analysis of costs of construction or of operation, with a view to effecting a greater economy of production, and with a view to securing accuracy in estimating the probable cost of projected structures or operations.
The Modern Manager a Cost-Analysis Engineer. It takes few men to design machines and structures, but it takes many men to superintend their operation. Therefore the great field of activity for the engineer of the future is in the field of operation rather than of design.
Until very recent years, engineers have rested satisfied with being designers of labor-saving appliances. Now, however, they are beginning to assume the broader and more profitable function of operating the plants which their brains have created. To handle the ordinary industrial enterprise successfully, involves:
First, the application of engineering ability in selecting and improving the machines used;
Second, managerial ability in organizing the workmen, and in stimulating them to produce a large output economically;
Third, advertising ability to sell the product.
The man who combines in himself the maximum sum of these three abilities is the man best adapted to succeed as the executive of an industrial enterprise. Since the introduction of systems of cost analysis and unit-payments for work done, engineers have become best qualified to act as managers of manufacturing plants. We include contracting and railroading among manufacturing industries, for the contractor manufactures structures, and the railroader manufactures transportation.
Before cost analysis had been developed to its present stage of excellence, the successful manager of men was usually one who had relied upon his lynx eyes and his knowledge of the weaknesses of human nature. He was often a man who owed his success largely to the fear he could inspire in his subordinates. He was domineering; he held his men to their tasks; he was, indeed, an industrial captain; and he used army discipline. He regarded every worker as a thief who would not hesitate at petty larceny of time, even in the face of the foreman, and who delighted in grand larceny behind his back. His foremen were his spies; and he set himself to spy upon his foremen. But cost-analysis engineering is evolving a wholly different class of managers and foremen.
To most people, a cost-keeping system means nothing but a sort of bookkeeping; and they are unable to understand how a bookkeeper can develop into a successful manager. But the truth is that modern cost keeping involves cost analysis, and cost analysis involves a study and comparison of methods and machines, and such a study leads to improvements and to commercial success.
Cost keeping, in the sense that we use the term, has for its main object the determination of the efficiency of men. A proper system of cost keeping tells you daily what each workman or each gang of workmen has accomplished. It is better than a foreman, for it cannot "stand in" with the men. It is better than a foreman, for it costs you less and it tells you more. A cost-keeping system tells you who are your good men, and who are your lazy men. It shows you whom to discharge, and whom to promote. It tells you whose wages are too high, and whose are not high enough. And, finally, it leads to that ideal condition of industrial organization known as profit-sharing. How often have we read in novels of Utopia, where all men share in the profits of all business; and how often have we smiled with incredulity at the prospect? Yet Utopia is right here in America, in spots; and it is a Utopia far more rational than that of the dreamers. There are many firms that pay their men on a unit-price or bonus system. This is profit-sharing, and it is a profit-sharing begotten by the use of cost-keeping systems; for, when a manager has learned by cost keeping that certain men or groups of men produce more than others, he soon perceives the advantage of stimulating them to further use of brain and muscle by paying them either a bonus for each unit produced in excess of a prescribed minimum, or a unit-price for each piece of work performed. The men invariably respond to this stimulus, and often in a remarkable degree. It is nothing unusual for a man to increase his output 50 per cent upon the introduction of a bonus system of payment; and there are many instances of increase amounting to 200 per cent. Each man then becomes a contractor, and works with the zeal of a contractor, for his earnings increase as his energy and ability increase. This is practical profit-sharing that any workman can understand. It is not something vague and intangible, like 5 per cent per annum. It is something very real and immediate, for a man can feel it in the pay envelope at the end of every week.
Cost keeping, then, leads to better management, although dispensing largely with submanagers. It substitutes the record card for the "big stick," yet the record card itself is the biggest stick ever devised.
The Science of Management. The managing of industrial enterprises is still more or less of an art; but the art is fast passing through the period of evolution that produces a science. There are, unquestionably, certain underlying principles of management which can be summarized into rules or laws. These rules or laws constitute the science of management, and it is our purpose to present certain of the more important laws of management.
Individual Incentive. When a group of men undertake to do a certain piece of work, such as shoveling earth into a wagon, the tendency is for each man to do as little as his neighbor. The inevitable result is that the shovels move with rhythmic precision, and the slowest man becomes the pacemaker for the rest. If any one of the men is ambitious to do a larger day's work, he is deterred by the knowledge that his employer will never know that it is he to whom the credit is due for a larger output. Then, too, the other men are apt to upbraid an ambitious man, and urge him not to set a "bad example" by working fast. To offset this tendency to fall to the lowest level of efficiency, employers have placed foremen over their employees, the duty of these foremen being to accelerate the motions of the men in any way possible. Each foreman has an individual incentive to get work done economically, for his employer studies the total amount of work done by the gang under the foreman, and rewards or punishes the foreman accordingly, the reward usually consisting of praise and an increase in salary. But the workmen under such a foreman have no individual incentive, and they will shirk their tasks as far as possible. Clearly, then, the first law of management is to create an individual incentive for every employee to do his best.
Creating Individual Incentive in a Gang. There are, and always will be, certain kinds of work that must be performed by a group of men working together, or, as we shall call it, a gang of men. When this is the case, the first step to be taken is to devise a method of readily and accurately measuring the work performed each day—not each week or each month—by the gang. The next step is to notify the men that, for all work performed daily in excess of a specified number of units of work, a bonus or premium will be paid for each excess unit. Of this bonus, the foreman will get a specified percentage, and the men will divide the rest among themselves. Thus a powerful individual incentive is created. It is true that certain men in the gang will remain less efficient than certain others, but the general average output will be greatly increased. The foreman himself will have enough incentive to see to it that the lazy or inefficient workmen in the gang are discharged, for it will no longer pay him to play the part of indulgence for the sake of being "a good fellow."
Devising Ways of Dispensing with Gang Work. Simply because it has always been the custom to do certain classes of work by gangs, should not deter a manager from endeavoring to devise a way of splitting the gang up into individual units. Indeed, it should be self-evident that if the creating of individual incentive is the fundamental law of management, a great amount of study may profitably be devoted to increasing individual incentive by doing away with gang work entirely. To illustrate, let us assume that 12 men are engaged in shoveling earth into wagons, working in two gangs of 6 men, with one foreman supervising the 12. If a sufficient number of teams and wagons are used, there will always be 2 wagons in the pit being loaded, and 6 men shoveling into each wagon. As fast as a wagon is loaded, it pulls out, and an empty one takes its place. If a manager is told that he can do away with this system of gang work, he will usually reply that it is impossible. Nevertheless, it is possible to reduce this gang work to individual work in most instances, as follows:
Instead of having 2 wagons and teams in the pit all the time, have 6 wagons without teams—6 empty wagons. Assign two men to each wagon. Provide a dividing board between the sides of each wagon, running either longitudinally or cross-wise, so that each man has his definite half of the wagon to fill. Then pair the men off according to their respective abilities, putting the two best men on one wagon, the two next best on another wagon, and so on. When a team brings an empty wagon into the pit, let it be unhooked from the empty wagon and hooked to a loaded wagon, thus saving team time, which would otherwise be consumed in waiting for the wagon to be loaded.
It is possible to give many illustrations of this sort, but not desirable, for our object is to indicate the laws that should be applied, rather than to solve specific problems. The student of cost-analysis engineering will derive his greatest stimulus from applying the laws to specific cases that come under his own observations.
Prompt Reward. Most men believe in Heaven, and many believe in Hell; but few are greatly affected in their action by the hope of the one or the fear of the other. Any reward or punishment that is remote in the time of its application, has a relatively faint influence in determining the average man's conduct. To be most effective, the reward or punishment must follow swiftly upon the act. Hence a managerial policy that may be otherwise good is likely to fail if there is not a prompt reward for excellence. All profit-sharing systems have failed, principally because of failure to recognize the necessity of prompt reward, as well as because of failure to recognize the necessity of individual incentive. The lower the scale of intelligence, the more prompt should be the reward. A common laborer should receive at least a statement of what he has earned every day. If, in the morning, he receives a card stating that he earned $2.10 the previous day, he will go at his task with a vim, hoping to do better. But if he does not know what he has earned until the end of a week, his imagination is not apt to be vivid enough to spur him to do his best.
One contractor, known to the authors, has a large blackboard on which the hourly record of his brickmasons is chalked up. He has found that this constant record of where they stand in the day's race is a splendid stimulus.
Sufficient Reward. When a man produces more than has been his custom, he feels entitled to a very large percentage of his increased output. His sense of justice is keen on this matter, and rightly so. It is true that he is not entitled to all the increase, for his employer may have provided him with machines or tools of a better kind, for which payment must ultimately be made. Moreover, more rapid work with any machine means more rapid wearing-out of its parts, and a consequent expense to the employer. Finally, the employer who has used his brains to devise ways of increasing the output of the employees is entitled to a very substantial reward. No one begrudges Thomas Edison his wealth. He has earned it by virtue of his inventions. In like manner, every man should be richly rewarded for every labor-saving machine or method which he creates or which he applies. However, employers are prone to try to take too large a part of the profit effected by an introduction of a system of unit-payment for work done.
Mr. Fred W. Taylor says that a workman should receive 30 to 100 per cent increase in wages upon the introduction of a piece-rate or bonus system of payment. Mr. Halsey says that the workman should receive one-third of increased value of his product resulting from an application of the bonus or premium system of payment. But the fact is that the employer should share liberally with his men; and, in the long run, the competition of other employers who are bidding for the services of workmen will force wages up to a point where the workman secures all but a very moderate percentage of the value of his daily product.
Educational Supervision. As previously stated, the old type of foreman mingles the functions of a spy with the functions of a mule-driver. The higher we go in the scale of human intelligence, however, the more noticeable is the fact that the supervisors are teachers of the men they supervise. These supervisors, foremen, managers—call them what you may—have learned that it pays better to spend time in training their men than to spend time in tongue-thrashing. Only of late years has it been discovered that systematic training of the least intelligent of workmen pays equally as well as the training of the most intelligent. The manager who recognizes the necessity of educational supervision, undertakes, first, a careful time study of each class of work. Then he analyzes the results, and deduces methods of securing greater economy. Having evolved a method of procedure, he reduces it to writing, and furnishes his foremen with detailed written or printed instructions to be followed, or, where the workmen are intelligent enough, the instructions are given to them directly; otherwise it is the function of the foreman to instruct the workmen.
Divorce of Planning from Performance. We have just spoken of the education of the workmen by the manager; but, before such education is possible, the manager must educate himself. In brief, he must study the problem and plan its most economic solution. According to the old-style method of management, each foreman was left largely to his own resources in planning methods, and, added to this duty, he had several other duties to perform, such as "pounding the men on the back" when lazy, seeing that materials were promptly supplied, employing and discharging men, looking after the condition of machines, etc. This multiplicity of duties can be properly performed, only by a foreman possessed of a multiplicity of talents. Since few foremen can comply with such a specification for brains, it follows that good foremen of the old style are rare indeed. The modern system of management consists in taking away from the foreman the function of planning the work, and in providing a department that does all the planning. This planning department should be under the supervision of the Cost-Analysis Engineer, for it is he and his assistants who, by unit-timing of work and by cost keeping, are best able to ascertain what methods should be applied to get the most economic results. Having planned a method, the Cost-Analysis Engineer delegates its pursuance to one or more foremen.
Subdivision of Duties. The previous rule of action comes under another, still more general in character—namely, the law of the subdivision of duties. Men are gifted with faculties and muscles that are extremely variable. One man will excel at running a rock drill, another at keeping time, another at surveying, and so on. It is clear, therefore, that the fewer the duties that any one man has to perform, the easier it is to find men who can perform the task well. But give a man many duties to perform, and he is almost certain to do poorly in at least one respect, if not in several. One foreman may have a great knack at "keeping an eye on" machinery, and in having few break-downs and delays. Then it is the part of wisdom to burden him with no other duties, unless the magnitude of the work does not warrant dividing the duties among two or more men. Let him be the machinery and tool foreman, reporting directly to the Cost-Analysis Engineer, and subordinate to no other foreman.
Another foreman may have a special knack at teaching workmen how to use tools and machines. Let him have no other duty but to see that the men have the proper tools, get them promptly, and use them properly. Let him be the gang foreman.
According to the magnitude of the work, there may be different kinds of foremen, all coming in contact with the same men, perhaps, but each performing different functions.
Limitations of Military Organization. Most industrial organizations to-day resemble military organizations, with their generals and intermediate officers, down to sergeants, each man reporting to but one man higher in rank. There is little doubt that the present tendency in industrial organizations is to abandon the military system to a very large extent, and for the following reasons:
A soldier has certain duties to perform, few in number, and simple in kind. Hence the man directly in command can control the actions of his subordinates easily and effectively. Control, moreover, should come invariably from the same officer, to avoid any possibility of disastrous confusion, and to insure the instant action of a body of men as one single mass.
On the other hand, industrial operations do not possess the same simplicity, particularly where men are using machines; nor is there the necessity of action in mass. The military organization, therefore, should be modified to suit the conditions; and one of these modifications is the introduction of two or more foremen in charge of certain functions or duties of the same men or groups of men, as explained in the paragraph on Subdivision of Duties.
Opposition to Change. All men have a certain mental inertia which makes them resist any change of their methods and habits. Foremen are particularly resistant to change, because of their custom of giving orders more frequently than receiving orders. Hence the Cost-Analysis Engineer who is trying to introduce modern methods is sure to meet with violent opposition from foremen; and the older the foreman, the more violent the opposition. When the Cost-Analysis Engineer introduces a new method, he must personally attend to every detail, or it will surely "go wrong." The old foreman will see to it that it does "go wrong," just to show that the "new-fangled ideas" are worthless.
Opposition may also develop among labor unions, particularly if it is proposed to pay on the piece-rate plan—that is, to pay so and so much for each unit of work performed. The bonus plan and the premium plan (to be described later) are schemes to overcome this opposition to the piece-rate plan, but in essence they are all the same.
No manager of men can attain great success unless he has grit enough and tact enough to overcome the opposition to change which he will encounter from all quarters. If he realizes in advance that such opposition is as certain to manifest itself as it is certain that it takes power to change the direction or speed of motion of a heavy body, he will have possessed himself of one of the laws of successful management.
A man cannot impart motion to a very heavy rock by violent impact of his own body against it; but he can separate it into fragments, and move each fragment by itself. In like manner, no attempt should be made to change all the methods of an industrial organization at one stroke. Separate it into elements, and take one element at a time, beginning with the simplest. Apply your cost-keeping system to that element—it may be only the hauling of materials with teams—and effect the change desired. Then take another element of the organization, and apply the system to it. Continue thus, fragment by fragment, and you will overcome the opposition that would otherwise resist your greatest effort.
Respect Your Own Ability. One of the most common mistakes made by managers lies in assuming that a skilled workman necessarily knows better how to perform work than does the manager himself. A manager should first aim to familiarize himself with the methods used by the best workmen, and then, by an itemized time study, he should set his own wits to work to improve the methods. Workmen, for the most part, do their work just as robins build their nests—by the pattern of precedent. They put little or no brains into improving the process, because it usually means no money in their pockets to effect an improvement, and because they reason that an improvement that effects a saving in time may actually result in the discharge of some of their fellow workmen. It should be a cardinal law of management to give very little weight to the claims that workmen make as to their own skill or knowledge; and the same holds true as to foremen. Because a man has blasted rock for twenty years, should not make his opinion of such force as to prevent a manager from undertaking to show that man how to do rock-blasting more economically. We have frequently effected great economies in rock-blasting after a time study occupying fewer weeks than the blaster had occupied of years in the same sort of work. The trained mind of the Cost-Analysis Engineer enables him to analyze costs and methods, and to develop improvements which no amount of so-called "practical experience" can effect.
Weigh carefully every reason against any proposed change in method, and act accordingly; but pay no attention whatsoever to predictions of failure that are bare of reasons. Do not be influenced even by many positive statements that your proposed method has been tried and has failed; for its failure may have been purposely brought about, or some small condition essential to its success may have been absent.
Therefore, respect your own ability. The manager who cannot improve upon methods used by his men is not fit to manage.
Profit Does Not Mean Excellence. Many a manager points to the profits of his business as the profit of his ability. He forgets that to a plainsman a small hill looks like a mountain. The general level of mediocrity makes such managers fancy that they are quite extraordinary if their business shows a large profit.
The Cost-Analysis Engineer can frequently take a profitable business and convert it into a wealth-producer beyond all dreams of the ordinary self-satisfied manager. Nor should the Cost-Analysis Engineer himself grow satisfied. There is positively no limit to the economies in production which may be effected by the human brain.
The Human Engine. The human body is an engine, or rather a boiler and engine combined. Its fuel is about 3 pounds of solid food daily, containing about as much energy as one pound of carbon or coal. One pound of coal will develop energy enough to perform about 10,000,000 foot-pounds of work; that is, it will raise 10,000,000 pounds one foot high, if there is no loss of power. But in all boilers and engines there is a loss of power, due to heat lost by radiation, heat carried away in the escaping gases and solids, etc., and heat developed by friction. A steam boiler and engine suffers so much loss of heat energy from these sources, that it rarely develops an efficiency of more than 10 per cent of the theoretical energy of the coal consumed. Curiously enough, the human body is not much more efficient than a steam boiler and engine; so that, while the one pound of carbon fed into the human body has a theoretical energy of about 10,000,000 foot-pounds, the actual useful work performed by a man is seldom more than 1,500,000 foot-pounds a day, or about 15 per cent of the theoretical energy of the food consumed.
When a man is walking, his whole body rises and falls each step, the rise being about one-seventh of a foot. Hence, in walking 25 miles in a day, about 2,000 steps per mile, a man weighing 140 pounds does 1,000,000 foot-pounds of work in raising the weight of his own body, to say nothing of the energy consumed in swinging his legs. A man may walk the 25 miles in 10 hours, or he may walk it in 8 hours. In either case, he does substantially the same amount of work, and burns up substantially the same amount of food.
It should be clear, therefore, that when workmen are doing intermittent work, with periods of comparative rest, they are capable of working correspondingly harder during the periods of exertion. Thus, in running a rock drill, the physical labor is light, except when shifting the drill or when changing drill bits. At such times, the men should be required to work with great vigor in order to reduce the lost time.
It should also be clear that workmen should be taught to make no unnecessary movements of the body in doing work. Yet it is a fact that few workmen economize their energy by avoiding unnecessary motions.
It should also be clear that it pays to house workmen at no great distance from their work, so as to reduce the labor of going to and from the work; for every foot-pound of energy spent in going or coming reduces by that much the available energy of the man.
If it were practicable to measure the amount of resistance involved in doing each class of physical work, we could readily reduce to a science the setting of reasonable daily tasks. The authors are of the opinion that a careful study of resistances will eventually enable managers to fix certain tasks with great accuracy. To illustrate, let us assume that it is desired to know how much sand a workman should be able to shovel into a wagon box 5 feet from the ground in a day. It is not impracticable to measure the force required to push the shovel into the sand, and the distance pushed. The average weight of the earth on a shovel, and the weight of the shovel can be ascertained. The vertical height that this load is lifted, is easily measured. If the workman bends his body to fill the shovel, the weight of his body above the waist, multiplied by the height that the center of gravity of that weight travels will give the foot-pounds of work done in bending the body. And thus, by a calculation of each element of work done, an accurate forecast of the total possible work could be made.
Such a study as this will often disclose an unsuspected lack of economy in using certain tools. From such a study, for example, it is perfectly clear that the long-handled shovel, universally used in the far West for shoveling sand, gravel, etc., is a more economical tool than the short-handled shovel used in the East. Men have argued about this matter for years without coming to a definite conclusion, the reason being that workmen accustomed to the short-handled shovel prefer it, while workmen accustomed to the long-handled shovel show an equal preference for that type of tool.