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.
Still in training.
LithoniaOperatorHaving said that, my impression was that the cost accounting did seem pretty arbitrary in some cases
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.
charlie hebdo I would like to hear what our resident accountancy expert, PJS1, has to say about the article.
JPS1If Amtrak brought in a top-notch consultancy, i.e. McKinsey & Co., Booze Allen Hamilton, etc., they could show the company how to rid itself of 95+ percent of the overheads within three to five years. It would not be pretty, but this how a large competitive company would do it. Read GE for an example.
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.)
BaltACD 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.
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.
BaltACDWent 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.
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?
charlie hebdo BaltACD 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.
JPS1If the long distance-trains were discontinued, some albeit probably a small dollar amount of the overheads in time would be shifted to the NEC and State Supported Trains. But without access to the company’s books, no one knows the scalability of these costs; how much would remain is speculation.
If the long distance routes were eliminated, where else would the overhead costs currently allocated to them be re-allocated?
BaltACDWent 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.)
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.
CMStPnP BaltACD 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.) 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.
BaltACD 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.)
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 down the line. If someone down the line has a idea, it has to reach the CEO in such a manner that the CEO thinks it was his idea. Consultant ideas are not CEO ideas, unless they can sell them as CEO ideas.
Convicted One If the long distance routes were eliminated, where else would the overhead costs currently allocated to them be re-allocated?
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 service line, i.e. long-distance, NEC, or other. The challenge would be to reshuffle their assignments to optimize their support for the remaining service lines, which would be NEC, etc.
When an organization goes through reorganization, it is an excellent opportunity to address two important questions: Why are we doing this? And if we should be doing it, can it be outsourced? Outsourcing makes scaling easier because it falls on the contractor to scale his operations to meet the needs of the client, which in this case would be Amtrak.
If management aggressively addressed the residual overheads upon discontinuing the long-distance trains, I suspect only a small amount would be transferable. Competitive organizations frequently discontinue unprofitable business segments, and they are not hobbled by having to reallocate residual overheads.
If the long-distance trains were discontinued, which is unlikely, dealing with the overheads could not be left up to Amtrak personnel. They have many reasons to push back against change. It would take a hardnosed outsider to cut through the bull and help force the necessary changes.
BaltACDWhat happens inside a company, any company, is politics - pure and simple. The CEO has his ideas and they get implemented down the line. If someone down the line has a idea, it has to reach the CEO in such a manner that the CEO thinks it was his idea. Consultant ideas are not CEO ideas, unless they can sell them as CEO ideas.
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 but I think the reputation is larger than the actual results in the field.
When it comes to consulting companies sometimes people follow the PR based on what they read about the company vs performance or tangible results they actually produce.
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.
BaltACD 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.
charlie hebdoI 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.
cx500 I don't think any member on this forum has access to the detailed accounting methods that Amtrak uses....... And it seems those Amtrak methods are not GAAP and the details are kept confidential.
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?
Greetings from Alberta
-an Articulate Malcontent
[quote user="charlie hebdo"]
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./quote]
When it comes to 'costs' the accountants will direct them wherever management wants to cost to be shown - either that or they are looking for their next accounting job. Amtrak cost accounting has absolutely no relation to GAAP, never has and never will. Amtrack Cost Accounting is a creative writing exercise for those that deal with numbers for a living, and it seems each year is more creative than the last.
I think that is OK as it is an opinion forum. Most of the experienced based approaches make sense, in my view and some are a revelation.
Where I get irritated is when someone claims expert and you can tell via what is written.......they are not more clued in than the average reader. Or when someone attempts to discredit other opinions based on a ever changing set of rules and interpretations......that is called internet trolling in my view.
BaltACDWhen it comes to 'costs' the accountants will direct them wherever management wants to cost to be shown - either that or they are looking for their next accounting job. Amtrak cost accounting has absolutely no relation to GAAP, never has and never will. Amtrack Cost Accounting is a creative writing exercise for those that deal with numbers for a living, and it seems each year is more creative than the last.
It is pretty standard railroad practice to purchase equipment then collateralize it as debt, also to purchase equipment, sell same equipment then lease it back (in fact the transportation industry does this as well). I noticed it seems for short-term purposes the railroads tend to use leasing companies vs. attempting the lease via their own means. Not sure why that is yet but it might be a more efficient approach short-term. This is more Financial than Cost Accounting though.
Have not seen Amtrak use Equipment Trust Certificates but Freight Railroads at one time did and might still do it. Some of the Financial Accounting practices used by the railroad industry or Amtrak might be viewed as strange by someone without a broad CPA type background as they are kind of transportation or railroad industry specific.
I think the problem area with Amtrak is on the overhead cost accounting being rather opaque at times when it is assessed to specific passenger trains or passenger train routes but again........few others in the rail passenger business so it might be Amtrak forging it's own path since it has few U.S. examples to follow as it attempts to modernize it's accounting.
BTW, I would be real curious how all the railroads balance out the horsepower by the hour business with run through power. That has to be a rather interesting system.
SD70DudeOnly one scenario is correct, so someone must be wrong. Or are they knowingly lying to serve their own interests, whatever they may be?
In my view it is political. If you split out the NEC and make it a HSR Corridor like in the rest of the country's Corridors and have it supported more directly by the states it traverses vs by Amtrak. We would be a long way from where we are now.
Amtrak likes the current arrangement because it can threaten publicly that lack of funds will impact the NEC and it gets a knee-jerk reaction by Congress in response. If Amtrak made an argument that lack of funds would impact the Midwestern HSR corridors it would not have the same impact because Congress would say the States can make up the difference OR Congress could point out that due to their current small market share it would not be such a large concern.
The NEC is the elephant of Amtrak though and can be manipulated more readily in a shakedown for more funds simply due to it's ridership and market share makes it a larger political entity than any other corridor in the country. Threaten the NEC and you threaten the Northeast economically.
CMStPnPWhere I get irritated is when someone claims expert and you can tell via what is written.......
You get irritated whenever someone disagrees with you. Disagreement is part of any discussion. Mature people don’t attack someone because they disagree with them. Believe it or not, there is usually more than one legitimate perspective on most issues.
You make sweeping generalizations, oftentimes off topic, i.e. railroad industry as opposed to Amtrak’s cost accounting policies, procedures, and practices. Here is an example: "It is pretty standard railroad practice to purchase equipment then collateralize it as debt, also to purchase equipment, sell same equipment then lease it back...." What does the railroad industry in general have to do with Amtrak's cost accounting methodologies?
You make claims about accounting without any evidence that you have ever worked as an accountant or know anything about it, other than the accounting that by your admission was in conjunction with your failed business venture. You have opined on the nation's large accounting firms without any evidence that you have even set foot inside one of them. You have made claims about Amtrak's accounting without any indication that you have even read the company's financial statements, including the notes, which are as important as the statements.
Instead of showing contra facts, you resort to name calling when anyone disagrees with you. Or claim anyone who disagrees with you is wrong without providing any verifiable supporting data. Worst of all, you draw conclusions about a participant's education, experience, background, etc. without knowing anything about them. Amazing!
JPS1, thanks for changing your name back. I had trouble pronouncing PJS1, but no problem with JPS1: "Gypsy."
Sorry, Charlie, I know this has nothing to do with Amtrak accounting.
_____________
"A stranger's just a friend you ain't met yet." --- Dave Gardner
JPS1You get irritated whenever someone disagrees with you.
No response even necessary here from me. :)
JPS1Instead of showing contra facts, you resort to name calling when anyone disagrees with you. Or claim anyone who disagrees with you is wrong without providing any verifiable supporting data. Worst of all, you draw conclusions about a participant's education, experience, background, etc. without knowing anything about them. Amazing!
Not really amazing at all. Typical. Quite typical. With all his sweeping generalizations about multiple fields, I've noticed he never gave any info on his own education and training.
charlie hebdoNot really amazing at all. Typical. Quite typical. With all his sweeping generalizations about multiple fields, I've noticed he never gave any info on his own education and training.
Excuse me, you have done that where.......exactly?
I have disclosed education and training over time, your too lazy to go back and look. He was after employer information at one point and thats not an acceptable question on a internet forum.
Even if I could disclose various details of where I work and what I do you would never believe it as you stated before and you would ask for proof. I would provide proof and you would ask for more....been down the path before. It's futile to provide any personal information to those that are set on arguing or trolling. Because it will be abused for more trolling. It is called "feeding the troll" by Moderators.
CMStPnP charlie hebdo Not really amazing at all. Typical. Quite typical. With all his sweeping generalizations about multiple fields, I've noticed he never gave any info on his own education and training. Excuse me, you have done that where.......exactly? I have disclosed education and training over time, your too lazy to go back and look. He was after employer information at one point and thats not an acceptable question on a internet forum. Even if I could disclose various details of where I work and what I do you would never believe it as you stated before and you would ask for proof. I would provide proof and you would ask for more....been down the path before. It's futile to provide any personal information to those that are set on arguing or trolling. Because it will be abused for more trolling. It is called "feeding the troll" by Moderators.
charlie hebdo Not really amazing at all. Typical. Quite typical. With all his sweeping generalizations about multiple fields, I've noticed he never gave any info on his own education and training.
Most posters know I am a practicing clinical psychologist and retired professor, thus having a Ph.D. and license. No mystery there. No, I am not going to look for your education and training. If you ever gave it before (you could have done here in one or two sentences) I would have no reason to doubt what you said. But you obfuscate instead and we can draw our own conclusions.
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