THE COSTING SYSTEM

Dominion, Volume 12, Issue 100, 22 January 1919, Page 5

THE COSTING SYSTEM

HOW MILLIONS ARE SAVED

A SIMPLE PRINCIPLE

'i'he British Treasury Standing Committee on co-ordination of Departmental action ,in regard to contracts recently issued its first report (says an English writer.) Its first recommendation lays stress on • one of the most important of the reforms produced by the war. This is the costing sys'tom, or the method of estimating in the most scientific; mariner the reasonable cost •of producing this or that article and basing public contracts on the result. The manufacture of munitions provided an excellent 'opportunity for the introduction of this method. The new Department could use its own experience in the national factories to check -the demands of individual contractors or to teach.them how to ' improve • their methods. A particular contractor would say thatho could nofc produce a\shell below a given figure; The Department, having analysed the cost of production in respect of ,every- detail in its own factory, would reply that the charge was excessive and that it was perfectly prepared to demonstrate to the incredulous contractor that the shell could be produced a great deal more cheaply. An official of the Department would tlien go 'down to the contractor's factory, examine the books, show_ by a. comparison with the results obtained in. tho national factory where money was being wasted or how a process here or there could be simplified. In this way the Department brought to light the. remarkable diversity of. method and the remarkable want of method that characterised a great part of our business world. If all these shells had been produced, by the old plan of competitive, tender the country would have paid a great deal more for its munitions aud many contractors would have coutinued to waste energy and-money by their unscientific customs. ' .'.-... The Army Contracts Department pursued the same policy hi the case of khaki. If the pre-war system had continued, tho price of cloth would have reached a fabulous figure. The Department protected the taxpayer _by requisitioning the factories and calling ;on them to produce cloth', at a price fixed on "conversion costs"—i.e., on the cost, scientifically' ascertained, of each of the several operations involved in the manufacture of cloth. These costs were fixed for. the different districts. The books of some representative Huddersfield manufacturers would be examined by an accountant in the service of the Department. It would decide whether there were any items that should be disallowed, and, after comparing the various accounts, using his knowledge of the customs and circumstances, of the industry, he would fix on a figure that would represent the reasonable cost of production.. This figure might.perhaps be challenged; in any case it would .be discussed. Acertain percentage would be added for reasonable profit, and. the resultant figure 'would"stand as the price" paid m the Huddersfield district for the manufacture of cloth. Tlie Treasury Committee recommend that this principle'should be adopted in'the great majority of contracts; the principle, that is, of taking "the basis of cost plus a fixed profit to,.the contractor in lieu of'- a profit' increasing with expenditure." After the Experience of this war this principle will be welcomed.as a measure of . national economy. Moreover, it tends not only to encourage public thrift, hut 'also to encourage a more healthy, view of the relations of the community to those who serve its industrial needs. But it is salutary also for its influence on the general conduct of industry.. Employers often- talk, and not, of course,- without reason in eoine instances, of trade ■union customs that are retained after they have become obsolete. But wnat of the conservative customs of employers ? There are any number of employers who have' the cloudiest and vaguest idea of details that are all-important if they are to understand where and how they are wasting money.- To such men the obntact with a public Department which applies the strictest m3thods of;'ac-' oouhtacy to every part of a business has brought an awakening' which will nave lasting results. In the United States there is a Bureau of Standards, which publishes regular reports showing what is a reasonable cost of production for each' class of article and each process. A manufacturer .with this report before him can' judge whether /his work is up to the average standard of" efficiency, and if not where and'why hie falls below it. After the war this is just the sort of service that-a central like the Board of Trade or the Ministry of Labaur could render to'our industries, working in conjunction with the Industrial Councils. As a nation we have learnt a great deal iii four years about the costs of production aud the economies that can be effected by better organisation. All this experience should be at the command of our manufacturers after the war,- and it will be the business of some public Department to collect it and to see that all these lessons are available for the guidance of industry. The term ''scientific maiiagfiment" is applied tn methods and proposals that are of a doubtful value and sometimes of a dangerous character in reference to the mechanising of human energy. But of "scientific management" in tkis form, of the'application of simple principles of common sense to business methods, industry cannot have too much. ' J.L.H.'