getting; but in fact it is merely a discussion of a very refined
form of cost getting, and a branch of the subject which has perhaps
been given too little attention. When the daily output of a job is
up to or above the average, everything looks bright, and no one who
is responsible feels overburdened with care. If, however the output
falls too low, some glaring cause is at once sought, and the fall of
output blamed to some unforeseen circumstance or accident. This is all
very well, as accidents affecting output cannot be entirely avoided,
and unforeseen conditions will make great differences in performance;
but the careful analysis of process cost subdivision will bring about
results that will astonish those "practical men" who think that they
have got their unit─costs down to the lowest point simply because their
output is generally large and everyone on the work seems to be working
to his top notch.
OUTPUT
The reason for compiling the data for which the time─keeper is
responsible, is that, from the analysis of the distribution made, the
contractor is able to tell what work is being done with profit; and,
if any particular operation shows loss, the analysis will help more
than anything else to discover the reason for the loss. In figuring
his profit on any work, the contractor must figure on a unit─cost
basis, exactly the same as he figures when he prepares his bid. In
order to do this, he must have an exact measurement of output. In many
classes of work, this measurement is extremely simple; but in others
no little ingenuity is required to devise a scheme which will give the
information wanted exactly and without requiring much work.
The payment for work is based upon the engineer's estimate. The
_monthly estimate_ is usually more or less a guess, made simply for the
purpose of paying the contractor approximately according to what he has
done. The monthly estimate is generally a pretty fair approximation
of the exact amount of work done; and the _final estimate_ covers
everything included in the contract that has not already been taken
care of.
The contractor's measurements of work done each day should agree quite
closely with the engineer's estimate; but, if the work is difficult
to measure, the contractor has many times more opportunity of making
errors in his measurement by going over it daily than the engineer has
who only goes over it once. A careful consideration of the differences
in the amount of estimates will sometimes show the contractor how his
estimates can be made to balance with those of any particular corps of
engineers, and he can govern his daily measurement accordingly.
There are few measurements in the field which can be reduced to a unit,
or rather which can be counted directly. Linear measurements are easy
enough to get; the measurement of area is a little more difficult;
while the measurements of volume, especially in rough work, are often
extremely difficult to make in a satisfactory manner. Measurement by
weight is often found to be of great advantage, if proper facilities
can be arranged for weighing.
The measurement of drill output is extremely simple. The holes for any
one day's work can be marked as they are finished, and, at the end of
the day, all measured; or they can be measured as finished, and their
depth taken, and hence the entire day's work is easily determined.
This, of course, is a linear measurement; and in the same class would
fall such work as laying track, ballasting, grading with a road
machine, and the measurement of the work of track and wheel scrapers.
The measurement of quantities whose units are areas is only a little
more difficult. Paving, for instance, is very easily measured, the
distance from curb to curb generally being constant, and so really
reducing the measuring to a linear measurement──that is, the length
of the section of pavement laid. Brick laying, while really a cubical
measurement, is taken in the same way, the area of the face of the wall
laid being taken, and multiplied by the standard number of bricks to
any given thickness of wall. This really reduces the measurement for
brick laying to a unit─basis, the unit being one brick. Painting and
plastering are measured in the same way; and so also is roofing. On
road work, plowing and sprinkling are estimated per unit─area; and in
quarry work, channeling is so estimated.
The determination of volume on construction work is liable to be very
difficult. Take, for instance, the output of a steam shovel cutting
through rock. The walls of the cut will be very irregular both in line
and in slope, no matter how skilfully the shovel is operated; and the
face of the cut is liable to be even more irregular. No absolutely
exact measurement can be made; and for this reason it is common
practice to estimate the contents of the cars rather than attempt to
estimate the size of the pit excavation during any one day. Generally
the size of the pit is roughly measured, and the yardage figured from
this measurement. It is also figured from the number of cars loaded,
and, if carefully done and the estimate of the volume of the cars
loaded is correct, both figures should balance at the end of the month
with the monthly estimate, which, on account of the large volume
measured, can practically ignore such irregularity as would affect the
other two measurements. In earth excavation, the measurement is much
simpler, because the pit is more regular and the cars can be fully
loaded.
There are natural working units that lend great simplicity to
calculations of cost──such, for example, as a floor panel in a
building, a column, a bridge panel, a pier of masonry, etc.
Another unit of measurement is often obtained through the percentage
of a total or of another unit, such as the amount of sand in a yard
of concrete. Knowing the mix, a percentage of the total yardage of
concrete will be the amount of sand that has been moved.
Care should be taken properly to subdivide the units of measurement.
The ordinary unit of concrete work is the cubic yard or the cubic foot.
The mistake is frequently made, of estimating the cost of forms and of
reinforcement only in terms of the cubic yards of concrete. The cost of
forms should be estimated also by the number of feet, board measure.
Reinforcing steel should be estimated by the pound.
One difficult kind of work to obtain costs on by the regular method, is
the laying of cut stone. A very simple way to obtain this is to paint
on each stone a number, and let the time─keeper get the dimensions of
the stone after it has been cut, before it has been placed in the wall.
Then the stone layer simply records the number of each stone as it is
laid.
A check on the measurement of the quantity of the work done is
frequently obtained by the measurement of the quantity of the work left
undone or of the material remaining in the stock piles.
COST SHOWING
The object of cost keeping is to furnish accurate and early information
to those in authority, both as to where they stand financially on the
work, and what necessities or opportunities there are for improvement
in economy.
In order to accomplish the object of cost keeping, it is necessary that
there be some efficient method of cost showing; and it is essential
that the system of cost showing, in combination with the system of cost
keeping, shall meet the following specifications:
1. It shall be accurate.
2. It shall be simple.
3. It shall be easy to study.
4. It shall be easy to compile.
5. It shall be capable of being compiled in a very short time after
the receipt of the original figures.
It needs no argument to prove that the cost─showing system should be
accurate. If it be full of errors, its usefulness is entirely obviated;
and 1 per cent of error in it will do a great deal more than 1 per cent
of damage to its efficiency, in assisting the manager to increase the
efficiency of the work. There is, however, a limit to the desirable
precision of such an affair. The cost of putting in ties on a certain
railroad for a certain month, for instance, may have been 7.2143
cents. If the last two figures are interesting from the statistician's
point of view, they are utterly useless to a practical manager. If
the previous month's performance has been, we shall say, 6.94 cents
per tie, this month's figures will have shown an increase in cost of
O.27 cent, which is approximately 3.9 per cent of the previous month's
figure. In other words, the tie─placing efficiency has decreased 3.9
per cent. It is very questionable whether the figure 4 per cent,
although not quite so precise, would not be rather more useful to the
manager than the figure 3.9 per cent; and, personally, the authors
would favor the briefer work. The degree of refinement to which these
records should be carried, is, in the last analysis, a matter for the
individual judgment of the manager himself. The student should bear in
mind the folly of unnecessarily elaborate figures.
[Illustration: AN EXCELLENT EXAMPLE OF THE MODERN FOUNDRY FOR SMALL
CASTINGS The Moulding Machines are Shown in Operation. Note the
Plentiful Supply of Daylight. The Michigan Stove Co., Detroit, Mich.]
The second specification, that the cost─showing system shall be simple,
is almost as important as the first. If it be not simple, the chances
for inaccuracy will be tremendously multiplied. It will take more work
to carry it on; and the straightening─out of errors and discrepancies
will be so difficult, and will require so much of the time of persons
in authority, as to leave them no opportunity to do their other work.
Plainly, it should not be necessary for a manager to do a lot of
detailed work on cost─keeping or cost─showing systems himself.
Specifications Nos. 3 and 4 are more or less included in specification
No. 2. Specification No. 5, however, is also of great importance.
Information that is stale is about as useless as no information at all.
If you tell a foreman on Monday that the work of his gang for the week
ending ten days before was not up to the mark, he will not have much
respect for your cost─keeping system; he will certainly not remember
sufficiently well the causes that produced his bad work, to remedy
them; or he will be able to pick out of the haze of history enough
excuses to let himself out of the responsibility of his bad work, and
to put his manager at sea as to where this foreman and his gang really
stand. It is therefore of prime importance that the arrangement for
showing the manager what his costs are, with the salient conditions
affecting such costs, shall be so rapid as to be "red─hot" all the
time.
The commonest arrangement of cost showing──and the only one ordinarily
found at the present day on most contract work──is an abstract prepared
on a piece of yellow paper by the time─keeper for the inspection of
the manager each morning; and this has so few disadvantages that it
would be very satisfactory, were it not that it is impossible from it
to compare at a glance the work done, let us say yesterday, with that
done previously. It is, however, far better than any other system which
lacks any of the essentials indicated above.
USE OF CHARTS
The best method that has so far been devised is by the use of charts
showing to scale the different unit─costs for the various days in the
month. Such charts are illustrated in Figs. 7 and 8. They are from the
records of the Construction Service Company. One of these (Fig. 7)
indicates the cost of channeling rock. It will be seen from the line
_A_, that during this month the number of square feet channeled varied
from 75 to 375, and that the labor cost varied from a maximum of 62
cents to a minimum of 8 cents. On the 8th, the morning crew did not
work, because, as it happened, of severe weather, which accounted for
the low output on that day. On the 24th, the night shift allowed the
pipes to freeze up. It may be mentioned that the foreman of the night
shift, whose name appears in brackets on the chart, has since turned
his attention to other fields of industry than channeling. On the 28th,
the channeler had reached a point where the cut was frequently filled
up by earth that slid in from the side and caused such a large amount
of sludge as to cushion the blows of the blade; and the chart shows on
that day a high cost, due to the cleaning away of this earth.
The chart illustrated in Fig. 8 is that for steam─shovel work on the
same contract of the Construction Service Company. Line _A_ indicates
the approximate number of yards moved per day. Line _B_ shows the
pay─roll, ranging from $165 to $310 per day, and including a percentage
for incidentals; while line _C_ represents the values of the _B_
quantity divided by the _A_ quantity, and gives the unit─cost in labor
per yard for excavating and moving rock. It will be noted that the
Sundays are skipped. These came on the 5th, 12th, 19th, and 26th of the
month. There were some men employed on each of these Sundays; but their
time was so distributed over the rest of the month as not to show for
the Sundays, as the steam shovels did not work on that day.
[Illustration: Fig. 7. Efficiency Chart Indicating Cost of Channeling
Rock.]
[Illustration: Fig. 8. Efficiency Chart Showing Costs in Connection
with Steam─Shovel Work in Rock Excavation and Removal.]
These charts are of a size to be filed in one of the standard
loose─leaf books, and their range is from zero to about 12; thus it is
possible to show any quantity to scale for any day in the month. This
company has not found it of advantage to plot more than 4 lines on any
one chart.
Charts such as these may be marked each morning by the time─keeper upon
a tracing prepared for this purpose; and at the end of the month the
lines connecting the points may be inked in, and the chart blue─printed
and the blue─print filed in a convenient place for immediate reference.
There are several ways of working out the unit─cost from the figures,
such for example as:
1. Performance per time unit
2. Performance per dollar;
3. Cost per unit of performance.
The first of these is not, properly speaking, a cost statement,
although it is a function of a cost statement and for certain purposes
is more convenient. The number of feet of rock drilled per drill hour,
is a very convenient form for record.
When drilling under conditions of snow and ice, more muckers have to be
employed than at other times. If the cost of mucking is included in the
cost of drilling, as it frequently is, the true index of how well the
drills are getting on is the number of feet per drill hour, rather than
the cost of the operation to the contractor.
The second method is the reciprocal of the third. Other systems will
suggest themselves by virtue of the peculiar requirements of each case
in practice.
=Checking by Charts.= A great advantage of the chart system of cost
showing, is that it acts as an automatic check upon the cost─keeping
system in general. As indicated earlier in this volume, it occasionally
happens that a punch─card is not turned in, or the time─keeper fails
to get certain data. This is immediately discoverable by the gap on
the chart, and thus the chart acts as a check on the cost─getting
department. This will not entirely obviate the necessity for inspection
to ascertain whether the time─cards are properly kept and the work is
properly done.
The showing of costs should be made _daily_ for the men immediately
identified with the field work; they should be made _weekly_ for the
general manager, and _monthly_ for the home office. These monthly
office reports are sometimes valuable in the planning of the financial
arrangements for the work. On a job involving, say, a pay─roll of
$5,000 a week, with monthly estimates, early information as to
performance over the month is of very great value.
Showing the men certain charts and records will serve to increase
their interest in their work, but this should not be overdone. It is
as well that the men should not know the actual cost of their work to
the contractor in dollars and cents. If, on the contract price, the
contractor is making a handsome profit, the men want more money. If the
contractor is not making a handsome profit, the men are apt to think
that they are on a losing job, and become discouraged accordingly. The
economy of the contractor's work should be private information, since
it might do him considerable damage by becoming known to competing
contractors. The charts showing the performance per unit of time,
however, are not subject to the restrictions above mentioned.
COST KEEPING
In the foregoing there has been nothing that is a part of the regular
bookkeeping, with the exception that part of the time─keeper's records
are necessary to the bookkeeper. It should be appreciated at the start,
that the bookkeeper's work is of great importance, that it cannot
be superseded by a cost─keeping system, and that it should not be
divided up with the cost─keeping system. The scoffers at cost analysis
are inclined to take the ground that a bookkeeper, a cost─keeper,
a cost─analysis engineer, are more or less clumsy substitutes for
managerial intelligence; and they point to the proposition that in the
last analysis it should be easy to let the office boy run the job with
a textbook at one elbow and a calculating machine at the other.
It is insisted upon at the start, that cost keeping is as important as
bookkeeping, but that it has an entirely different function; and in
applying cost keeping to construction work, it is very important that a
distinct line of demarcation be drawn between the two branches.
Another error that is frequently made by antiquarian students, men
who are studying old methods of engineering and construction rather
than those of to─day, is that a cost─keeping system is assumed to
be complete by the man who runs it, when he knows how many feet of
hole his drillers are able to average per hour, per day, or per
week. The cost analyst will point to the fact that in the literature
of the subject many false statements are made as to the costs of
certain items of work, and will show that no allowance has been made
for depreciation, repairs, etc., not to say profit, interest on
the contractor's money, and a host of other things. The student is
warned that a proper cost─keeping system must of necessity take into
consideration _all_ the items of cost on the job; and, further, it
should take them into account with such detail that it will be a real,
living help to a man in estimating future costs on similar work.
Now, as a general thing, the essential similarity of items has been
lost sight of when these items are parts of work which is not generally
dissimilar. For example, the item of earthwork in the construction of
a large dam may be very similar in its essential cost to, and may be
of the greatest use in assisting a contractor or engineer to figure
the cost of, earthwork under similar climatic conditions on a railroad
embankment; yet those who are most interested in the subject are
inclined to classify dams as an entirely different sort of structure
from railroads. The designing of a dam is a different matter from the
design of a railroad; but to build one will often involve the same kind
of tools, the same kind of machinery, the same kind of men, the same
kind of "horse sense," and the same general principles of construction,
as to build the other. Therefore, if his costs are properly subdivided
and intelligently kept on one kind of construction, the contractor or
engineer will be materially aided, not only in estimating the cost of
the work upon the other, but in being in close touch with his work
after he has started.
Every construction organization ought to have a schedule of standard
items which may be called _ledger accounts_; and its books ought to
be kept in such a manner that the records of the total and of the
unit─amounts for these items on past work and on current work may
be immediately available for the benefit of its officers. No two
contractors will have the same arrangement for distributing cost; no
two will have the same items for the accounts; but there are certain
fundamental items that will come into use on almost every large piece
of work, and some of them have a peculiar significance, and should be
treated with special care.
=Estimates on Ledger Items.= In making estimates it is important to
have this list in sight, in order that important items may not be
omitted. Such a list, which will cover a large portion of the ordinary
charges, is here given:
1. GANG LABOR:
(_a_) Hourly rate;
(_b_) Monthly rate.
The men who work by the month are apt to have to spend a good deal of
non─productive time, on account of weather conditions, etc.; while the
men who are on an hourly basis, as a general thing, do some profitable
work whenever they are paid. It is feasible to figure a good deal more
closely on the cost of work for those men who have practically no lost
time to be taken care of, as _emergencies_ or _incidentals_. It will
be noted, also, that the cost and the time of hourly and daily men can
be figured and charted day by day; whereas it is impossible to know
exactly what the charges will be for labor that is paid by the month,
until the end of the month. In order to make report charts showing cost
as completely as possible, it is a frequent practice to add a certain
percentage to the cost of the known items, to cover the so─called _lost
foremen's time_; and to make at the end of the month a correction of a
greater or less size, in order to make the cost─keeping end tally with
the bookkeeping end of the work.
2. GENERAL LABOR, ETC. This item will comprise the labor of the men
who have something to do with more than a few parts of the work. A
watchman's time is not spent in drilling, or on a steam shovel while it
is running. Nevertheless a proportionate part of his salary should be
divided among the different branches of the work. Sometimes this will
be a very small item, sometimes a large item. For example, if a steam
shovel is excavating 30,000 yards of material per month, the watchman's
unit─charge to excavation may be very small; but if the shovel is tied
up for nearly the whole month, the charge per unit for watchman's time
may be alarmingly high. This is one reason why unit─cost and total cost
should always go together. A blacksmith's time, part of which is spent
in sharpening drills, need not be all chargeable to drilling, because
he may spend a good deal of time in repairing the steam shovel or
fixing hand tools, etc.
3. OVERHEAD LABOR. Clerks, bookkeepers, messengers, office force, and
General Manager are ordinarily included among the items of _overhead
charge_, as well as salaries of general officers.
4. OVERHEAD MATERIALS. In this classification, there are included
stationery, office furniture, supplies, etc. When the office furniture
is disposed of upon the completion of the work, its value should be
credited upon this item.
5. OVERHEAD INCIDENTALS. These may include various items, such as
telephone, office rent, telegraph messages, express charges on
incidentals not directly connected with plant, etc.
6. PREPARATORY COSTS. These include the cost of getting ready to do the
work, and, depending upon the nature of the job, may include any or all
of the following items:
(_a_) Temporary roads;
(_b_) Temporary trestles;
(_c_) Clearing and grubbing;
(_d_) Snow removal and drainage;
(_e_) Traveling expenses to job;
(_f_) Preliminary estimates, calculations, and surveys;
(_g_) Freight and handling of materials to and from job;
(_h_) Freight on preliminary supplies;
(_i_) Handling of preliminary supplies;
(_j_) Licenses and premiums on bonds, etc.
(_k_) Legal expenses;
(_l_) Loss on initial operations;
(_m_) Right of way and cost of site;
(_n_) Sheds, storehouses, and other temporary buildings;
(_o_) Tools, less final value.
7. SUPPLIES. These are chargeable F. O. B. the job, or at the railroad
station nearest to the work. They include all supplies for carrying on
the work, as distinct from _material_, including explosives, coal, oil,
waste, etc., and may include a _charge for water_.
8. INTEREST AND DEPRECIATION ON PLANT. This item is variously estimated
by different people, and may vary greatly. It is impossible to
establish an absolute rule; but on the average contractor's plant, it
may be stated that 1/10 of 1 per cent per working day is a very fair
general average figure. The average steam shovel, for example, will
work perhaps 200 days, under favorable weather conditions; and on this
basis the interest and depreciation charge will be 20 per cent per
year, and is not far from a fair figure. Some contractors allow 33 per
cent per year on such material as road machinery, including crushers,
steam rollers, etc. This is a little high, provided that a reasonable
charge is made for repairs.