American School of Correspondence

“ A cost-keeping system tells you who are your good men, and who are your lazy men. It shows you whom to discharge, and whom to promote. It tells you whose wages are too high, and whose are not high enough. And, finally, it leads to that ideal condition of industrial organization known as profit-sharing. How often have we read in novels of Utopia, where all men share in the profits of all business ”

“ In presenting a new method to a foreman or superintendent, it is well not to encourage the raising of objections. It is better to let the objections raise themselves in the application of the process; and a man who has not gone on record as saying that in his opinion a new scheme is no good, is a much more loyal supporter of the new scheme than when he has committed himself against it.
One of the difficulties in improving the efficiency of work, is the extraordinarily ingenious line of excuses that the men will present for not getting their work done properly. ”

“ The expense necessary to market the product from one factory may be so excessive as to cause one concern to lose business to their competitors who can sell their output at less expense, while the actual cost to manufacture may be identical in both shops. Again, while one manufacturer, who can produce at a low cost but carries a heavy selling expense, may conduct his business at a loss, his next door rival in trade may not be able to manufacture as economically but can sell his product with less expense, and thereby carry on a profitable business. ”

“ Field work is constantly presenting obstacles and difficulties which have to be met and fought, calling for emergency judgment on the part of the men in charge and on the part of all the men on the work to a greater or less extent; and here alone is one of the chief reasons why a contractor comes to depend almost exclusively upon the personality of his superintendent or foreman, to the exclusion of systematic analysis. ”

“ In taking of time and in the application of the cost of labor to the cost of work, there are probably as many systems as there are organizations doing work; and even within any one organization using a well-defined system throughout its entire operations, there will be no two men making the same interpretation of the rules laid down, or—more especially—whose methods of attack will be the same. But in spite of these many variations of method, there are several primary systems which are standard, and which can be found in one form or another on all properly conducted work. ”

“ Inter-department work in a plant often raises an interesting question. Shall labor expended by one department on repairs for another department receive credit for same as productive labor? The foreman of the department often claims that the repairs his men are doing for another department are just as much production, so far as he is concerned, as though his men were building a machine for sale, and should shoulder part of his expense. In a certain sense, all labor is productive, and from a selfish point of view, the foreman's argument is a fair one. ”

“ But the truth is that modern cost keeping involves cost analysis, and cost analysis involves a study and comparison of methods and machines, and such a study leads to improvements and to commercial success.
Cost keeping, in the sense that we use the term, has for its main object the determination of the efficiency of men. A proper system of cost keeping tells you daily what each workman or each gang of workmen has accomplished. It is better than a foreman, for it cannot "stand in" with the men. It is better than a foreman, for it costs you less and it tells you more. ”

“ If a foreman be noticed vigorously complaining that the men he has to deal with are inefficient, incompetent, and a disgrace to civilization compared to the men he had to work with some years before, he may as a general thing be put down as a "blow-hard" and of little value to the organization. The most successful are usually the ones who are ordinarily quiet, cool under emergency, and yet of sufficient determination to inspire among the men a wholesome respect for them. ”

“ The establishment of standard or efficiency labor costs means predetermined costs. This is a radical departure from established custom; on its face, contrary to recognized accounting practice; in results, wonderfully efficient. To determine standards in men, material, and machines is a function of the engineer; the recording of facts—the actual cost—is the function of the comptroller or accountant. ”

“ Without trespassing on the general subject of cost accounts, it is quite essential to clearly establish at the very outset what constitutes true cost. It would be difficult to conceive of a manufacturer to-day who would simply take the value of wages paid and material used for a cost price, and to this amount add the usual percentage of profit he desires to make on his output, and sell at that price. It would be folly to attempt business on any such basis. No business can be conducted without expense, and yet, in the case just cited, the manufacturer has simply ignored it. ”

“ This would, in theory, give to the less skillful man a wage exactly commensurate with his skill. But as workers become more and more skillful, and increase at the same time their productiveness and their earning capacity above normal, there is a tendency on the part of the employer to reduce the rate per unit to bring the aggregate wage back to normal. The result is that the worker, fearing a reduction in the rate, limits his production to the number of units that will insure an average wage. ”

“ When a group of men undertake to do a certain piece of work, such as shoveling earth into a wagon, the tendency is for each man to do as little as his neighbor. The inevitable result is that the shovels move with rhythmic precision, and the slowest man becomes the pacemaker for the rest. If any one of the men is ambitious to do a larger day's work, he is deterred by the knowledge that his employer will never know that it is he to whom the credit is due for a larger output. ”

“ The designing of a dam is a different matter from the design of a railroad; but to build one will often involve the same kind of tools, the same kind of machinery, the same kind of men, the same kind of "horse sense," and the same general principles of construction, as to build the other. Therefore, if his costs are properly subdivided and intelligently kept on one kind of construction, the contractor or engineer will be materially aided, not only in estimating the cost of the work upon the other, but in being in close touch with his work after he has started. ”

“ Not only is it necessary to know how many hours each employe has worked, but the quantity of production must be known.
It is true that a manufacturing business requires the services of some employes whose productiveness is not readily expressed in standard units, in which cases the first method only can be used. These are the men who are necessary to the economical operation of a department or shop, or of the plant as a whole, but whose time cannot be charged to a particular job. Labor of this class is termed indirect or non-productive. ”

“ Perhaps no other head of a department has greater need of complete information and systematic records of his department, than does the buyer. A man may have every qualification for a successful purchasing agent, but, unless he has the most detailed information to aid him in judging qualities and prices, his cannot be considered a successful department. On the other hand, many a man, with no other qualification than common sense, has built up a most successful purchasing department because his work was thoroughly systematized. ”

“ It is necessary to have, first, a system of locating responsibility. If a dinkey becomes derailed, if the spacing of drill holes be erroneously made, if a steam shovel be out of line, if the wrong methods of loading be pursued, if a pump be out of order, if necessary material or supplies be wanting, if the pipes freeze up, if, in short, one hundred and one little things happen that cause confusion on the work, it should be possible to find someone who, by some crime of omission or commission, is responsible for the trouble, and who can be made, in some degree at least, to bear the brunt of it. ”

“ There are many firms that pay their men on a unit-price or bonus system. This is profit-sharing, and it is a profit-sharing begotten by the use of cost-keeping systems; for, when a manager has learned by cost keeping that certain men or groups of men produce more than others, he soon perceives the advantage of stimulating them to further use of brain and muscle by paying them either a bonus for each unit produced in excess of a prescribed minimum, or a unit-price for each piece of work performed. ”

“ It should be appreciated at the start, that the bookkeeper's work is of great importance, that it cannot be superseded by a cost-keeping system, and that it should not be divided up with the cost-keeping system. The scoffers at cost analysis are inclined to take the ground that a bookkeeper, a cost-keeper, a cost-analysis engineer, are more or less clumsy substitutes for managerial intelligence; and they point to the proposition that in the last analysis it should be easy to let the office boy run the job with a textbook at one elbow and a calculating machine at the other. ”

“ Is it, then, any less productive labor because a manufacturer prefers to make his plant extensions or new machinery, himself, instead of buying? It does not appear so; it certainly is productive labor. ”

“ Standard costs are the costs obtained under perfect conditions—when the department, shop, or plant is running full time at full capacity; when all of the time of every employe is accounted for by his job time cards; when there is no wasted time or unusual expense. While standard costs may not be attained—probably never will be—this should be the goal, to reach which, managers, engineers, superintendents, foremen, and workmen should strive constantly. ”

“ In the employment of labor, there are two parties to be considered—the employer of labor and the seller of labor. The desire of the first is to secure the results of the labor at the lowest possible cost per unit of production rather than at the lowest cost per individual. The desire of the second is to secure the highest price for his labor, based on the unit of time rather than on the unit of production. ”

“ Simply because it has always been the custom to do certain classes of work by gangs, should not deter a manager from endeavoring to devise a way of splitting the gang up into individual units. Indeed, it should be self-evident that if the creating of individual incentive is the fundamental law of management, a great amount of study may profitably be devoted to increasing individual incentive by doing away with gang work entirely. ”

“ The day-wage plan contemplates the payment of a stated wage for a stated unit of time. If all men performing the same task were equally skillful, or if the wage rate could be adjusted in conformity with the varying degrees of productiveness found in every body of workmen, the day-wage plan would be ideal. But neither of these conditions exists.
Workers are liable to insist on the application of the rule of organized labor, that all men performing similar tasks shall be paid the same wage. Since all men are not equally skillful, this results in certain inequalities. ”

“ When a man produces more than has been his custom, he feels entitled to a very large percentage of his increased output. His sense of justice is keen on this matter, and rightly so. It is true that he is not entitled to all the increase, for his employer may have provided him with machines or tools of a better kind, for which payment must ultimately be made. Moreover, more rapid work with any machine means more rapid wearing-out of its parts, and a consequent expense to the employer. ”

“ One of the most common mistakes made by managers lies in assuming that a skilled workman necessarily knows better how to perform work than does the manager himself. A manager should first aim to familiarize himself with the methods used by the best workmen, and then, by an itemized time study, he should set his own wits to work to improve the methods. ”

“ In railroad work a man is usually employed for a long term of years, on rather small pay, with a large chance of promotion. From the day of his initiation on the work, he is impressed profoundly with the necessity of protecting lives and of keeping trains moving all the time; and, in a short time, he comes to the frame of mind in which his pay, his personal convenience, and his personal prejudice are subordinate interests. ”

“ If a certain number of men have been working together under one foreman on one particular piece of work, they come to know each other's methods and their foreman's methods intimately; and they necessarily will become very much more efficient than when they are shifted from gang to gang or when they have to work under different foremen. If the record of the performance of each individual gang can be obtained, and the men, as well as the foreman, are acquainted with the record, a spirit of rivalry between the gangs can be developed which will add greatly to efficiency. ”

“ The inability to fix a standard for the efficiency of the labor lays the man-hour rate open to criticism. Could this be done, this method would in many cases prove a very equitable way of distributing expense. It will, however, be seen at once that as it is, a skilled workman carries no more expense than an apprentice boy, and if both work on a productive job a full week, the expense in either case is the same regardless of the wages paid. ”