Alternative approach to costing on Indian Railways: Linking outputs and expenses to activity centres

R. S., Gopalan and M., Ravibabu and Sahu, Sasmita (2017): Alternative approach to costing on Indian Railways: Linking outputs and expenses to activity centres.

Abstract

Costing of railway systems is complicated due to a large proportion of sunk and joint costs. Indian Railways (IR) currently estimates costs at the zonal level by first segregating the direct costs, i.e. costs which can be assigned to a service, and joint costs, i.e. costs which are incurred jointly for more than one service. While the direct costs are assigned to the service, the joint costs are assigned based on ratios worked out for assigning costs between various services. Compared to the method in vogue, the paper proposes and demonstrates a disaggregated approach for developing costs. Unlike the current approach, the proposed approach develops expenses and performance measures at the activity centre level, i.e. at division, shed, and workshop level. The disaggregated data is used to build statistical models relating expenditure to outputs. The paper also shows how the approach can help in i) separating variable and fixed costs ii) developing costs as per sectional characteristics, iii) comparing and benchmarking performance of entities and finally iv) how the process can be automated. The paper also shows how the work could be useful for the accounts reforms project of IR and to the Rail Development Authority in fulfilling some of its objectives.

• Item Type: MPRA Paper
• Language: English
• Keywords: Railway costing, statistical models, Indian Railways
• Subjects: R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R4 - Transportation Economics > R48 - Government Pricing and Policy

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