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Railroad operation costs, which have threatened to cut passenger service and raise fares, are based on unreal figures, according to a report published recently by the Business School.
The study, which was undertaken in 1954 by Dwight R. Ladd, former assistant professor of Business Administration, concluded that the railroads' figures are misleading, and inadequate for computing cost data.
Although he guessed that passenger service is "desperately unprofitable," Ladd found that the industry doesn't know whether it is losing $637 million a year or making a slight profit. He pointed out that the "averages" used to compute the costs of operating a single train could be off by more than $350,000 annually.
Averages Hurt Management
These averages are derived by the prescribed ICC Uniform System of Accounts, which Ladd accused of "retarding the development of good management cost data." One ICC account combines water cooler ice, car cleaners' wages, detouring costs, and eye and ear tests for trainmen into one figure.
Ladd pointed out the need for trained cost analysts, saying that misjudgements can cost a railroad $1,000 a day. He continued that the railroads "should not be burdened with data prepared in standardized forms required by regulatory authorities."
The report condemned most railroads for not employing men with sufficient skill, imagination and curiosity to dig out the basic facts concerning operational costs, and claimed that the industry "has not been willing to give men the time and the staffs required for such work."
Ladd, who is now associate professor of Business Administration at the University of Western Ontario, submitted his report as a doctoral thesis last June, and it was published last month.
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