5. TT: main characteristics
Section:
The TT[5] operates in the local public transport sector in the Trentino Alto Adige region through two main business units: the rail transport service (rail division (RD)) and the coach service (coach division (CD)). The rail transport service covers about 900,000 km with more than 30 trains and approximately 2.5 million rail passengers.
This study focuses in particular on the RD unit, which builds railway lines and manages rail transport. Its activities include maintenance of the vehicles and infrastructure, the latter of which consists of rail networks (roadbed, foundations, tracks), engineering works (bridges, flyovers, tunnels, and supporting structures), overhead contact lines for electric traction, station buildings, level crossings, signal and safety systems, telephone systems, rail workshops, and train depots.
In TT's organisational structure are the two basic organisational units typical of local public transport companies[6]:
•
the movement function, which represents the core of the management of transport services, deals with planning and running the transport; and
•
the technical service deals with storing, maintaining, and repairing the vehicles and manages the systems and infrastructures.
In addition to these functions, the support services consist of administration, procurement/tender, marketing and communications, general services, management control, and quality.
Today's transport companies face challenges in the areas of new regulations, the market, and the need to participate actively in tenders to obtain the concession to provide transport services. As a result, the company must develop managerial tools that can guarantee prompt delivery of information about the costs the company incurs in providing its transport services. This need was initially identified in 2002 by the CEO of the TT (today the CEO of the RD). The goals of identifying the costs of the production process were to:
•
break the costs into to the company's business areas in order to create a detailed income statement with business area results, assign organisational responsibility, and separate the business of infrastructure management from the business of transport management; and
•
reveal the cost of the individual journey in order to compare it with the fare set by the local government (the Autonomous Province of Trento); the journey can be considered the company's service unit, as it is used to compare the fare to the cost of production.
In order to achieve these aims, the company contacted the researchers to develop an appropriate cost accounting system that would fully capture all the costs incurred in providing the transportation service, that is, both those costs linked to the service provision process and those linked to the network infrastructure. The researchers’ active role included studying the specific production process of the TT, they identifying ABC as the appropriate cost accounting system with which to manage the costs of the production process, proposing the adoption of the new practice – cost destinations – to capture and manage the costs of the rail infrastructure, and supporting TT in adopting this new cost accounting system to verify that all the steps to implementation were performed correctly.
Before the application of ABC and the introduction of cost destinations, the company had used cost information that was organised by nature and that referred to single units of the organisational structure. With this system, which was quite close to the logic of the cost centre system, the company could not determine the real cost of a journey. Although the costs were allocated to single journeys based on volume parameters (no. of kilometres, no. of passengers, no. of trains, etc.), these parameters did not express the actual consumption of costs by each journey, nor did they distinguish the costs consumed by the infrastructure from those related to the actual movement of the train. However, the application of the cost destination process revealed which costs referred to the management of the infrastructure and which to the management of the transport service itself. The head of management accounting control and internal auditing managed the application of the new measurement cost system.
The next section describes analytically the various steps undertaken to implement the new cost accounting system.
Application of the ABC methodology to TT
The first step in applying ABC lies in identifying the activities that make up the production process. This phase, which lasted about three months, was carried out through interviews with the heads of the 29 organisational units that make up the “movement and traffic management” and the “technical management” of the company, and through questionnaires sent to those who had to fill in timesheets. This phase led to the identification of 52 activities associated with the rail and coach service, listed as follows:
(1)
checking lines and infrastructure, which consists of periodically checking the condition of the railway network (tracks, points, lighting systems, line areas, stations, etc.);
(2)
propping up the tracks, which consists of making the tracks level using special machinery;
(3)
removing and cutting grass, which consists of removing the grass at the sides of the tracks using suitable machinery;
(4)
supervision of the railway;
(5)
checking work done by external suppliers, which consists of checking and inspecting work carried out by external suppliers on the railway network;
(6)
clearing snow and ice, which consists of removing snow and ice from the tracks and stations;
(7)
cleaning buildings;
(8)
managing maintenance material;
(9)
managing railway maintenance personnel;
(10)
managing coach service maintenance personnel;
(11)
maintenance and checking of the railway infrastructures;
(12)
management of environmental problems, including rubbish disposal and environmental protection;
(13)
building maintenance;
(14)
planning building work and rail systems;
(15)
management of personnel safety;
(16)
special project management;
(17)
railway electrical maintenance;
(18)
railway mechanical maintenance;
(19)
railway carriage maintenance;
(20)
carpentry;
(21)
cleaning trains and stations;
(22)
railway warehouse management;
(23)
maintenance of electric signal systems (ESSs), such as level crossings and tunnel telephones;
(24)
ACS safety systems maintenance;
(25)
maintenance of overhead cables;
(26)
electrical maintenance of coach service;
(27)
mechanical maintenance of coach service;
(28)
carriage maintenance of coach service;
(29)
cleaning of coaches and depot;
(30)
tyre maintenance;
(31)
management of coach service warehouse;
(32)
minor maintenance;
(33)
railway operations, which consists of managing shifts of staff that travel, assigning rolling stock to the journeys, defining the composition of the trains, and applying railway regulations;
(34)
ticket sales;
(35)
railway traffic support;
(36)
opening/closing level crossings;
(37)
goods transport management;
(38)
driving trains;
(39)
management of timetable changes (times, stops, journeys);
(40)
coach service operations;
(41)
driving the coaches;
(42)
inspecting rail and coach staff;
(43)
supervision of rail and coach services;
(44)
sales of rental services;
(45)
administrative management of rental services;
(46)
management of rental shifts;
(47)
driving rented coaches;
(48)
co‐ordinating operations on the railway network;
(49)
co‐ordinating circulation and traffic;
(50)
driving service vehicles;
(51)
transferring maintenance material; and
(52)
testing rolling stock.
The next step consisted of attributing costs to the activities by attributing the costs that exclusively concern an activity to it and attributing the costs common to more than one activity using the resource drivers. In particular, the annual cost of personnel was obtained by summing all the expenses connected to the use of human resources: basic salaries and various additional payments, including allowances, overtime, national insurance, and welfare contributions; and set‐asides for severance pay or deferred payments of other kinds. The average cost of the workstation and the space needed by the personnel to carry out the various jobs was also calculated by summing all the cost items regarding or originating from the building and dividing this cost by the overall area of the office space in question, thereby obtaining a cost per square metre that was multiplied by the average area occupied by a workstation. These costs are included in the labour costs. Table I contains the list of the cost items attributed to the activities listed in the columns.
Defining cost destinations
Numerous cost items, some of significant amounts, are not attributed to the activities, because they are not directly or indirectly consumed by them. The outputs of certain activities of the production process are absorbed by the plants, vehicles, and railway network (stations, trolleys, crossing, signs, etc.), so we decided to create new cost containers – the destinations – that gather the costs that are not referable to the activities but that have parts of the infrastructure as their consumption destination. Therefore, the companies’ infrastructures must be broken into their component parts in as much detail as the company sees fit to create an accounting container for each destination. TT opted for a highly analytical definition of the cost destinations – 592 in total, 437 of which pertained to the railway, 130 to the coach service, and the remaining 25 to the common infrastructures. Table II contains the list of all the costs destinations identified by TT[7].
Each cost destination gathers:
•
specific costs, which refer to the resources consumed directly and exclusively by the individual cost destination;
•
common costs, which refer to the resources used by more than one cos
5. TT: main characteristics
Section:
The TT[5] operates in the local public transport sector in the Trentino Alto Adige region through two main business units: the rail transport service (rail division (RD)) and the coach service (coach division (CD)). The rail transport service covers about 900,000 km with more than 30 trains and approximately 2.5 million rail passengers.
This study focuses in particular on the RD unit, which builds railway lines and manages rail transport. Its activities include maintenance of the vehicles and infrastructure, the latter of which consists of rail networks (roadbed, foundations, tracks), engineering works (bridges, flyovers, tunnels, and supporting structures), overhead contact lines for electric traction, station buildings, level crossings, signal and safety systems, telephone systems, rail workshops, and train depots.
In TT's organisational structure are the two basic organisational units typical of local public transport companies[6]:
•
the movement function, which represents the core of the management of transport services, deals with planning and running the transport; and
•
the technical service deals with storing, maintaining, and repairing the vehicles and manages the systems and infrastructures.
In addition to these functions, the support services consist of administration, procurement/tender, marketing and communications, general services, management control, and quality.
Today's transport companies face challenges in the areas of new regulations, the market, and the need to participate actively in tenders to obtain the concession to provide transport services. As a result, the company must develop managerial tools that can guarantee prompt delivery of information about the costs the company incurs in providing its transport services. This need was initially identified in 2002 by the CEO of the TT (today the CEO of the RD). The goals of identifying the costs of the production process were to:
•
break the costs into to the company's business areas in order to create a detailed income statement with business area results, assign organisational responsibility, and separate the business of infrastructure management from the business of transport management; and
•
reveal the cost of the individual journey in order to compare it with the fare set by the local government (the Autonomous Province of Trento); the journey can be considered the company's service unit, as it is used to compare the fare to the cost of production.
In order to achieve these aims, the company contacted the researchers to develop an appropriate cost accounting system that would fully capture all the costs incurred in providing the transportation service, that is, both those costs linked to the service provision process and those linked to the network infrastructure. The researchers’ active role included studying the specific production process of the TT, they identifying ABC as the appropriate cost accounting system with which to manage the costs of the production process, proposing the adoption of the new practice – cost destinations – to capture and manage the costs of the rail infrastructure, and supporting TT in adopting this new cost accounting system to verify that all the steps to implementation were performed correctly.
Before the application of ABC and the introduction of cost destinations, the company had used cost information that was organised by nature and that referred to single units of the organisational structure. With this system, which was quite close to the logic of the cost centre system, the company could not determine the real cost of a journey. Although the costs were allocated to single journeys based on volume parameters (no. of kilometres, no. of passengers, no. of trains, etc.), these parameters did not express the actual consumption of costs by each journey, nor did they distinguish the costs consumed by the infrastructure from those related to the actual movement of the train. However, the application of the cost destination process revealed which costs referred to the management of the infrastructure and which to the management of the transport service itself. The head of management accounting control and internal auditing managed the application of the new measurement cost system.
The next section describes analytically the various steps undertaken to implement the new cost accounting system.
Application of the ABC methodology to TT
The first step in applying ABC lies in identifying the activities that make up the production process. This phase, which lasted about three months, was carried out through interviews with the heads of the 29 organisational units that make up the “movement and traffic management” and the “technical management” of the company, and through questionnaires sent to those who had to fill in timesheets. This phase led to the identification of 52 activities associated with the rail and coach service, listed as follows:
(1)
checking lines and infrastructure, which consists of periodically checking the condition of the railway network (tracks, points, lighting systems, line areas, stations, etc.);
(2)
propping up the tracks, which consists of making the tracks level using special machinery;
(3)
removing and cutting grass, which consists of removing the grass at the sides of the tracks using suitable machinery;
(4)
supervision of the railway;
(5)
checking work done by external suppliers, which consists of checking and inspecting work carried out by external suppliers on the railway network;
(6)
clearing snow and ice, which consists of removing snow and ice from the tracks and stations;
(7)
cleaning buildings;
(8)
managing maintenance material;
(9)
managing railway maintenance personnel;
(10)
managing coach service maintenance personnel;
(11)
maintenance and checking of the railway infrastructures;
(12)
management of environmental problems, including rubbish disposal and environmental protection;
(13)
building maintenance;
(14)
planning building work and rail systems;
(15)
management of personnel safety;
(16)
special project management;
(17)
railway electrical maintenance;
(18)
railway mechanical maintenance;
(19)
railway carriage maintenance;
(20)
carpentry;
(21)
cleaning trains and stations;
(22)
railway warehouse management;
(23)
maintenance of electric signal systems (ESSs), such as level crossings and tunnel telephones;
(24)
ACS safety systems maintenance;
(25)
maintenance of overhead cables;
(26)
electrical maintenance of coach service;
(27)
mechanical maintenance of coach service;
(28)
carriage maintenance of coach service;
(29)
cleaning of coaches and depot;
(30)
tyre maintenance;
(31)
management of coach service warehouse;
(32)
minor maintenance;
(33)
railway operations, which consists of managing shifts of staff that travel, assigning rolling stock to the journeys, defining the composition of the trains, and applying railway regulations;
(34)
ticket sales;
(35)
railway traffic support;
(36)
opening/closing level crossings;
(37)
goods transport management;
(38)
driving trains;
(39)
management of timetable changes (times, stops, journeys);
(40)
coach service operations;
(41)
driving the coaches;
(42)
inspecting rail and coach staff;
(43)
supervision of rail and coach services;
(44)
sales of rental services;
(45)
administrative management of rental services;
(46)
management of rental shifts;
(47)
driving rented coaches;
(48)
co‐ordinating operations on the railway network;
(49)
co‐ordinating circulation and traffic;
(50)
driving service vehicles;
(51)
transferring maintenance material; and
(52)
testing rolling stock.
The next step consisted of attributing costs to the activities by attributing the costs that exclusively concern an activity to it and attributing the costs common to more than one activity using the resource drivers. In particular, the annual cost of personnel was obtained by summing all the expenses connected to the use of human resources: basic salaries and various additional payments, including allowances, overtime, national insurance, and welfare contributions; and set‐asides for severance pay or deferred payments of other kinds. The average cost of the workstation and the space needed by the personnel to carry out the various jobs was also calculated by summing all the cost items regarding or originating from the building and dividing this cost by the overall area of the office space in question, thereby obtaining a cost per square metre that was multiplied by the average area occupied by a workstation. These costs are included in the labour costs. Table I contains the list of the cost items attributed to the activities listed in the columns.
Defining cost destinations
Numerous cost items, some of significant amounts, are not attributed to the activities, because they are not directly or indirectly consumed by them. The outputs of certain activities of the production process are absorbed by the plants, vehicles, and railway network (stations, trolleys, crossing, signs, etc.), so we decided to create new cost containers – the destinations – that gather the costs that are not referable to the activities but that have parts of the infrastructure as their consumption destination. Therefore, the companies’ infrastructures must be broken into their component parts in as much detail as the company sees fit to create an accounting container for each destination. TT opted for a highly analytical definition of the cost destinations – 592 in total, 437 of which pertained to the railway, 130 to the coach service, and the remaining 25 to the common infrastructures. Table II contains the list of all the costs destinations identified by TT[7].
Each cost destination gathers:
•
specific costs, which refer to the resources consumed directly and exclusively by the individual cost destination;
•
common costs, which refer to the resources used by more than one cos
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