The way that early railway managers controlled cost is a bit of an enigma to us. We know to a good extent how this was done after the 1870, however, when the practice of cost and management accounting started, why it started and how the statistics that early cost accounting techniques generated were applied, is a bit of an unknown quantity in railway (and business) history.
Indeed, the only real research that has been done on this area was undertaken by Terry Gourvish in the 1970s when he looked at Captain Mark Huish’s management of the London and North Western Railway Between 1846 and 1858.[1] The only failure of this excellent study is that it focussed on a man who was a unique innovator in railway management practice. Yet, Gourvish didn’t study the cost accounting techniques of the majority of railways. Furthermore, the innovative techniques, such as the ton and passenger mile statistics which worked out the cost of moving one ton of goods or one passenger one mile, were abandoned by the L&NWR after Huish was forced out of the company.[2] Therefore, there is a research vacuum that needs to be filled.
In my studies of the London and South Western Railway (L&SWR) I have determined that the origins of cost accounting within the company are to be found in the Locomotive Department. The expenditure of the department represented an area of company operations were costs were determined by the performance of drivers, the quality of the coal and the efficiency of the locomotives themselves. Thus, it was only natural that with so many variables that the genesis of the L&SWR’s cost accounting could be found there.
Yet, in my studies I have also found that the company compared the performance of its locomotive stock with that of other companies frequently. Indeed, by the 1860s I am aware that this was a regularly undertaken exercise.[3] The implication is, therefore, that not only was the Locomotive Department where cost accounting developed on the L&SWR, but it was where it was to be found in the elsewhere emergent industry.
Notably, the first case of comparison mentioned in the L&SWR Locomotive Committee minute book came on the 24th April 1840 at the Locomotive Committee, only a year and a half after the L&SWR had started operating. This was comparison of the costs of the L&SWR’s motive power with that of the London and Birmingham (L&BR) and Grand Junction Railways (GJR).[4] The letter, which informed the committee of this information, came from Edward Bury, the Locomotive Superintendent of the London and Birmingham Railway since 1838.[5] What was contained in the letter is unknown, however, it is most likely to been the cost of locomotive operation per train mile.
Therefore, this first comparison allows a number of conclusions to be made about early railways’ cost and management accounting. Firstly, statistical measurement of locomotive operating performance would have to be the same on different railway companies for informative comparisons to be made between them. Therefore, this reveals that the L&B, GJR and L&SWR, were collecting the same sorts of information relating to locomotive operation.
However, when this process of statistical uniformity amongst railway companies began is unknown. In Bury’s letter to Joseph Woods he stated that the results presented were from the ‘half year ending December 1839.’[6] This either means that the origin of the L&SWR formulation of cost accounting can be found in universal norms that were widely known when it started operating, or, it was part of an industry-wide formulation process, whereby different locomotive department chiefs collaborated to lay down a particular set of performance measures. Whatever the answer is, it is clear that these standards developed very quickly within the industry.
--------------
[1] Gourvish, Terry, Mark Huish and the London and North Western Railway, (Newton Abbott, 1972)
[2] Gourvish, Mark Huish and the London and North Western Railway, p.255-267
[3] TNA, RAIL 411/469 Locomotives, boilers, rolling stock, etc: correspondence, 1868-1878, half yearly report of costs in the locomotive, carriage and wagon department, November 11th 1871, p.280
[4]The National Archives [TNA], RAIL 412/4, Locomotive Engine, Locomotive Way and Works, Locomotive Power, and Traffic Police and Goods committees, 24th April 1840
[5] Marshall, John, A Biographical Dictionary of Railway Engineers, (Newton Abbot, 1878), p.46-47
[6] TNA, RAIL 412/4, Locomotive Engine, Locomotive Way and Works, Locomotive Power, and Traffic Police and Goods committees, 24th April 1840
[7] TNA, RAIL 411/469 Locomotives, boilers, rolling stock, etc: correspondence, 1868-1878, half yearly report of costs in the locomotive, carriage and wagon department, November 11th 1871, p.280
A very interesting and unique site!
ReplyDeleteInteresting.
ReplyDeleteWould another possibility be that this was early commercial espionage - with officials in other railways being paid for the info? Or perhaps some sort of exchange, whereby companies agreed to share their figures in return for thinking on the best way to calculate costs?
Many thanks for the very interesting thoughts, but given some recent work I don't think so. Early railways generally left ultimate oversight of locomotive affairs to their chief engineers, many of whom worked on more than one railway. For example, Joseph Locke in this period was engineer for the LSWR and the Grand Junction Railway, and oversaw both of their locomotive departments. Indeed, research I have done has shown that in 1848 the industry's three famous engineers, Locke, Brunel and Stephenson, (who all knew each other) had ultimate engineering oversight for 59.13% of the British railway industry's total mileage. Therefore, this meant that chief engineers would implant practices from one railway they were overseeing to another.
ReplyDeleteFurthermore, as the major engineers knew each other and did cooperate on some projects, for example at one point both Locke and Stephenson were the London and North Western Railway's engineers, they would have shared ideas between themselves.
However, in addition to this, as engineering abilities were specialised skills, chief engineers would move their staff from one railway to another. For example Gooch, Woods' successor at the LSWR, actually came from the Grand Junction. Thus, this would also facilitate movement of ideas.
Therefore, my gut feeling is that the early railways were an environment in which engineers cooperated and pooled ideas, and this was what aided the development of management and cost accounting.
I really didn't know about Railway very well but your this article helped me a lot to get some valuable information regarding that. I wanna say it's really an interesting and informative post.
ReplyDelete