Cyclopedia of Commerce, Accountancy, Business Administration, v. 02 (of 10)

by American School of Correspondence

COST REDUCTION

The ultimate aim of cost analysis is economic efficiency; and any system or method of cost analysis which does not result in the lessening of the total cost per unit of work performed, must necessarily be a failure.

After the costs on work have been partially analyzed, it becomes the province of the engineer to introduce methods and devices whereby the expense of obtaining the various data may be more than offset in the general economy of the work. It was long ago realized that shop practice could be economized by methods of systematization; and we have an early instance of the appreciation of this fact in the story of the struggles and methods re-sorted to by James Watt in the construction of the early steam engines. The troubles arising from incompetent workmen, drunkenness, and the necessity of doing work in different parts of the country far removed from headquarters, were as real then as they are now, with this disadvantage, that in the eighteenth century the press, the telephone, and the professional schools had not reached a development admitting of intelligent coöperation in the attack upon this problem.

Within the last score of years it has been found that cost-analysis applied to shop work problems gives most amazing results. When the piece-work system was introduced, it was believed that the final solution of the problem had been attained. The men were then placed upon the footing of contractors. A man got so much pay for accomplishing so much work; and it was most clearly to his interest to accomplish the maximum of work in order to get the maximum of pay. It was immediately evident that the good men would soon show such a contrast to the poor men on the work as to inspire a constant rivalry, thereby resulting in a very much higher output. In order that the desire to accomplish more work should not interfere with the quality of the work, all materials were systematically and rigidly inspected.

For a good many years the piece-work system flourished, and it is still flourishing as compared with its predecessors. It is vigorously fought by trades unions and by the less able among the men. It is tolerated by those of mediocre ability, and it is heartily endorsed by the most skilful. In order to remove the resistance of labor unions, a modification of the piece-rate system, known as the bonus system, has been devised. It will be described in a subsequent paragraph.

Remarkable development has been achieved in the shop by the most brilliant work on the part of the men who have applied cost analysis, favored by the fact that in the shop one has conditions of work which are practically invariable from day to day. It is possible, then, to compare the work done per unit of time in the morning, with the work done per unit of time in the afternoon, or for each hour in the day, and thus to determine the effect of fatigue of the operators upon their efficiency and the effect of such specific influences as the character of artificial light, the grade of steel in tools, and even the economic value of providing reading rooms, white-enameled lavatories, and recreation for the operatives. To cost analysis has been largely due the development of the special high-speed steels and an amazing number of improvements in machinery, entirely aside from the stimulus and education of the workmen.

In field work, however, comparatively little has been accomplished in the world at large along these lines, not because the opportunity is lacking, but because certain of the difficulties appeal more glaringly to the pioneer in the field, and offer some peculiar discouragements. The conditions are not uniform from day to day. The locus of the work is changing, the weather is variable, and a very large number of external agencies will be continually interfering with the scheduled regularity of the work. The method or process whereby a piece of work can be done more economically, may be instituted at just the time when some apparently trivial variation of the weather, or breakdown in a water system, or interruption in train service, may produce an entirely opposite effect which will more than nullify the advantages obtained from the improved process or method, and will sometimes cover a period of a good many days and possibly weeks, making it appear that the improved method is not only a failure but a dragon in disguise.

Field work is constantly presenting obstacles and difficulties which have to be met and fought, calling for emergency judgment on the part of the men in charge and on the part of all the men on the work to a greater or less extent; and here alone is one of the chief reasons why a contractor comes to depend almost exclusively upon the personality of his superintendent or foreman, to the exclusion of systematic analysis.

It is abundantly demonstrable that when results are properly charted, and when a careful record is kept of the causes of interruption and the extent of the accidental obstacles, the problem becomes much simplified. It is astonishing how intimately a manager may come into touch in a short time with the obstacles to his work, and with the most efficient methods for their removal, by means of proper reports and cost analysis, and especially by the intelligent use of charts.

Effects of Weather. The principal obstruction to economical construction work in the temperate zone, is due to rain. If it is raining at about the time when the men come upon the work, they will rarely fail to retire to their homes or to some point so far from the scene of operations as to make it difficult if not impossible to get them back upon the job if the weather should clear.

If a rain comes on in the noon hour, they generally leave and do not return to work. If it should start to drizzle in the middle of the afternoon, and the men are under fairly good discipline, they stand a very good chance to stay the day out rather than miss getting a full day's pay.

Next to rain as an obstacle is freezing weather. On concrete work, if the concrete is laid at temperatures below 22 degrees, and particularly when a slow-setting brand of cement is used, special precautions have to be taken, and even then the work is liable to be rejected. For work in which steam engines are employed, as dinkeys, steam shovels, steam drills, etc., continued cold weather is likely to result in the freezing of supply pipes, the freezing of valves, and the breaking of pipe connections, necessitating a good deal of frost protection and a well-disciplined and well-handled gang of pipe-fitters under a responsible foreman charged with the express duty of keeping the water lines clear. In very cold weather—say below zero—the freezing of water will seriously interfere with the economy of the work on the water end alone. Where steam drills are used and the weather is exceedingly cold, the steam from the drills blown upon the men condenses and freezes upon their clothes, involving great inconvenience and suffering. Under such conditions the men will not work so many hours per day as otherwise, and frequently they will not work at all at critical times in the progress of the work, to the great detriment of economy.

It has been observed that a combination of stress of weather a few hours before the coming of the paymaster seems to be more discouraging than at any other time, and it is seized upon as an excuse to quit work.

In very windy weather, more coal is burned than at other times; and sometimes a boiler which is capable of running seven or eight drills in ordinary weather will not be able to furnish steam for more than 70 or 80 per cent of this amount in the high, cold winds.

For the above reasons it is essential to keep a record of the temperature and weather.

Accidental Conditions. Besides the weather, there are a host of accidental conditions that may arise to influence the economy of the work and complicate a precise study of the performance. Some of these, named at random, are:

1. The blowing-out of the gasket in a main water supply pump.

2. A shipment of poor coal.

3. The wrecking of a trestle.

4. A derailment of cars.

5. The breaking of machinery on a shovel.

6. The burning-out of a boiler, due to carelessness on the part of a watchman over night.

7. The non-arrival of necessary and important material.

8. Irregular blasting, due to irregular spacing of drill holes, or to bad loading, or to poor detonators or a poor exploding machine, or to irregularity in the character of the rock itself.

9. Erratic action on the part of one or more of the men, due to drunkenness, ill-temper, or general contrariness.

10. Errors on the part of foremen in coöperation, some of which are not detected in time to be eliminated.

In working out any special problem, care should be taken that such accidental causes affecting performance—whether they decrease the performance or, as may happen, increase it—should be carefully noted and be a part of the regular report on the work. These features of a report ordinarily are ignored as being unimportant, but they are of the utmost value to the success of the work.