IMPROVING TRANSPORT COSTING BY USING OPERATION MODELING

. Transport costing methods applied in practice rely mainly on traditional, accounting approaches. These methods are not able to provide reliable cost of information for decision makers on elementary services as they use arbitrary allocation principles. The operation based on costing is one of the methodological developments whose adaptation can contribute to improve the accuracy of transport cost management. To support costing improvements in transport, this present paper aims to identify the shortcomings of currently used techniques and give a guideline on how to overcome them. The theoretical basics of a new transport costing model are developed while some experiences of early pilot applications are also considered.


Introduction
Transport companies generally operate in complex service networks and use high amounts of various resources. us, it has been more and more important for company managers to be able to investigate the cost e ciency of business and technology processes so that the e ectiveness of capacity allocations can be improved signi cantly (Bokor 2008). e applied costing -cost calculation and management -schemes of the companies operating in the transport sector are, however, o en not suitable enough to support this kind of decision making tasks. ey rely on traditional accounting principles which limit their capabilities to deliver the necessary management information on the core elements of the transport service chain.
To make transport cost management systems more accurate it is inevitable to assess their weaknesses and nd some ways on how to eliminate or at least mitigate them. According to the outcomes of the research work conducted in this topic, the integration of operation modeling techniques into transport cost calculations is a possible solution to make current management procedures more e ective. e results of the research, published in related topics can be used to specify the new transport costing model. is kind of model is not an o en examined topic in the literature. Nevertheless, there are some research results which can contribute to the application of operation modeling in transport cost calculation. Pohlen and La Londe (1994) identi ed the adaptation possibilities of activity-based costing in logistics. Comelli et al. (2008) used an evaluation tool for logistics planning which combined nancial and physical factors. Activity-based costing was applied in supply chains by Dekker and Van Goor (2000), Lin et al. (2001) and Askarany et al. (2010). e performance indicators of supply chains were elaborated by Cai et al. (2009), Fawcet andCooper (1998). Baykasoğlu and Kaplanoğlu (2008) used the activity-based costing method in a case study aiming at calculating operation costs in a freight transport company. Pirttilä and Hautaniemi (1995), and furthermore, Satolglu et al. (2006) analyzed the application possibilities of activity-based costing in distribution systems. Siepermann (2007) carried out a comparative analysis of various logistics costing approaches by considering their strengths and weaknesses.
A er evaluating the relevant literature it can be concluded that most of the related costing models and applications have been developed in the logistics sector. Furthermore, the research results cover mainly speci c areas of logistics or transport. e aim of this paper is to propose a more general costing approach focusing on a broader set of transport operations.

Problems of Current Transport Costing Practices
Traditional transport costing approaches based exclusively on nancial and accounting rules do not meet the requirements of up-to-date management information systems. Such costing regimes have typical problems which can be classi ed as follows: too high level of aggregation regarding the costing and pro tability information; missing de nitions of cost and cost driver structures; widespread use of simpli ed average values for the detailed calculations; ignoring performance ows and cause-e ect relationships during cost allocations; application of arbitrary allocation procedures when distributing general costs. Cost and pro t calculation systems have the task to deliver reliable information on business and technology processes so that their contributions to the company's success or failure can be determined. Transport companies, however, prefer using aggregated data not only in the balance sheet and in the pro t-loss statement but also in their intern management information systems. ese data do not make it possible to have suitable costing information on elementary services, business units or activities.
e problem of aggregation can be mainly derived from the lack of information on the companies' cost structures. Transport companies o en do not pay enough attention to model the cost ows in detail and to nd out the drivers explaining the cost allocations within the organization. Instead of going into detail and calculating dedicated cost (and prime cost) values for the various services or organizational units they apply simpli ed and uni ed average values in the planning of operational processes. ese average values are calculated on the basis of aggregated costs and performances (Bokor 2009).
If simpli ed average cost data are used the cost allocations do not take into account the cause-e ect relationships in the operation structure. So, cost items are taken over from a certain cost calculation object to another one by ignoring the related performance ows (or company-intern services). It is mainly the case when distributing general costs. ese cost items can not be connected to the transport services directly so they need additional allocation procedures. Nevertheless, the current cost distribution procedures in transport are set up essentially in an arbitrary way (e.g. allocating indirect costs proportionally to the direct costs).
Although the methodological problems have been identi ed for the Hungarian transport-logistics market they will probably apply to other Central-and East-European countries as well. at is why it is worth considering their consequences on the management practices and exploring the possible solutions reducing the negative impacts.

Consequences of the Identi ed Methodological Problems
e simple application of traditional costing methods may cause signi cant errors in the cost calculation process. is is especially the case when the cost e ciency of companies running complex transport or logistics services is investigated. So the methodological problems mentioned o en lead to the following distortions: sketchy evaluations which are not going into the details; inaccurate values of calculated unit costs and margins; uniformed calculations concealing the various speci cations of di erent service elements or technology/business operations; insu cient resource allocations. e sketchy evaluation of transport services and organizational units does not allow pinpointing the pro t or loss generators in the company or in the supply chain. Due to the arbitrary allocations the calculation results (prime or unit costs, gross or net margins, pro ts) may deliver inaccurate information for decision makers, which may initiate incorrect management resolutions.
Special attention shall be paid to the use of generalized costing values: here the special features of di erent transport services or operations are homogenized. By doing so important information on the cost e ciency of elementary calculation objects may be ignored. And if wrong information is made available resource allocations will not bring about e cient operations in transport companies: pro t generators will not be supported while loss generators will not be eliminated or they will be identi ed incorrectly.
A er analyzing the methodological problems and their negative consequences it can be concluded that the current transport costing practices have to be further developed signi cantly. ere are no perfect solutions which overcome all of the disadvantages. Nevertheless, considerable improvements can be achieved when technology parameters and relations are integrated into the accounting procedures. One of the applicable methods corresponding to this approach is operation-based costing. Its principles and practical adaptation issues are worked out in the following chapter.

A Possible Solution for Mitigating the Distortions of Traditional Costing Procedures
Modeling the operations and using these models for depicting the cost ows in the given company or service chain can help overcome the methodological problems of traditional transport costing mechanisms. e main idea of this approach is that cost allocations among the various elements of the service structure and the objects generating these services are performed by taking into account the performance ows between them. e phases of the proposed methodology can be summarized as follows: 1) building up the operational model of the investigated company. e model consists of: the pro t objects: elementary transport services whose pro tability (or margin, cost coverage ratio, etc.) shall be evaluated; the cost objects: entities which generate performances contributing to the production of trans-port services or to the operation of other cost objects; the performance relationships and ows between the objects; 2) integrating the cost ows into the operational model with special regard to the indirect cost elements. Fig. 1 illustrates the theoretical framework of the transport costing tool based on operation modeling.
To begin with, the rst step is to identify the pro t objects; it means those services which gain revenues for the transport company. Table 1 demonstrates some of the applicable pro t objects for the transport branches in di erent aggregation levels. e second step of operational modeling is to determine the cost objects. ese are organizational units, activities, constructive works, vehicles or other pieces of machinery which consume various resources (materials, extern services, work force, etc.) and at the same time produce performances. e monetized resource consumption of cost objects represents the set of indirect costs. e performances of the cost objects shall be measured by indicators. ese performance indicators are then used as cost drivers. Table 2 contains some entities which can be regarded as the cost objects in transport companies. e possible performance indicators (cost drivers) of the cost objects are also indicated.
It has to be noted that the pro t and cost objects are chosen according to the speci c operation circumstances of the examined transport company.
Having identi ed the pro t and cost objects the performance relationships between them shall be investigated. e results of this investigation are the performance distribution matrices. Table 3 shows the performance distribution matrix containing the performance ows form cost objects to pro t objects (the cost objects -cost objects matrix (if relevant) can be set up similarly). e number of cost objects (CO) is n, the number of pro t objects (PO) is m. e values (p ij ) are measured in percentage: the performance ows from cost object i to pro t object j (P ij ) divided by the total performance of cost object i (P i ).
Based on the operational model cost ows have become more transparent. e direct costs can be allocated to the pro t objects directly. e indirect costs are allocated to the cost objects rst (based on the resource consumption). en the costs of the cost objects are driven over to the pro t objects based on the performance consumption (registered in the performance distribution matrix). Some cost items may be allocated to other cost objects too. An example of such allocations may be that of the maintenance cost objects. is model is able to describe the cause-e ect relationships of cost calculations by examining and measuring the performance ows. e prime cost of transport pro t object j can be calculated as follows (C d -direct cost, C id -indirect costs collected in the cost objects): If revenue data are available for the pro t objects, margins can also be determined -where appropriate. So, the indirect cost component is calculated using the performance relations but not in an arbitrary way. It gives more reliable costing information than the traditional, on account of doing cost management procedure. Furthermore, the cost e ciency of the cost objects can be measured as well by comparing the costs and the performances and evaluating their ratio.

e First Experiences of Related Pilot Applications
ere are only few applications similar to the proposed costing procedure available in the international literature. e most sophisticated example is published in a road (freight) transport company (Baykasoglu et al. 2008). Here activities were used as cost objects to make the cost calculations more accurate. Cost drivers were determined by using the AHP (analytic hierarchy process) methodology. e results of the traditional and the activity-based cost calculations showed considerable differences. It was proved that the use of traditional costing leads to distortions when evaluating the pro tability of transportation services. At the same time activity-based costing -as a certain form of operation-based costingdelivered more correct data on prime costs and margins. Of course, even these values are not fully perfect but due to the cause-e ect oriented cost (re)allocations their authenticity is much higher.
Activity-based costing is o en regarded as a possible tool for enhancing the e ciency of logistics or the supply chain. e experience gained with such kind of projects may be useful for transport oriented applications too. For example, one of the important outcomes is that nancial and physical ows can be evaluated in a combined way and this approach supports the tactical production planning (Comelli et al. 2008).
Another nding is that activity-based costing o ers improvements to supply chain management and to the performance of the organizations. However, when implementing the new costing method non-manufacturing rms (like the ones in the transport sector) need more attention to proceed with the high level adoption (Askarany et al. 2010).
Some pilot projects using the basic ideas of the operation-based costing model have already been carried out also among Hungarian transport companies representing the rail market (Bokor 2009). Two of them have yielded valuable results. e rst case was when pilot examinations were conducted for the case of the freight transport branch of a regional integrated rail company. e goal of these investigations was to establish the margins of freight trains and shipments as pro t objects. Almost all cost elements had to be considered as indirect as no intern service charging system -e.g. infrastructure or traction -was operated between the business areas. Another problem was that the basic input data were available as aggregated values only. us, several simpli cations had to be introduced. Nevertheless, the application of the model contributed to re ne the pro t object calculations by making the prime cost structure more transparent.
Another, more sophisticated application of the operation-based costing approach was the estimation of average and marginal costs in rail infrastructure management. Here -similarly to the rst case -activities represented the cost objects. Activity costs had been made available by the management information system directly. e main task was to nd appropriate cost drivers for the cost categories. e cost drivers came from the dataset of performance indicators. Selecting the cost drivers to each activity cost category was carried out by regression analyses (as an alternative solution to AHP). As a result of the regression, analysis cost functions were set up for the activity groups. en the average and the marginal cost data of the main rail infrastructure activities could be produced by averaging or deriving the cost functions.
Summarizing the rst outcomes of the pilot applications explained above, it can be emphasized that some general remarks concerning the pre-requisites and the constraints of the new costing method are possible. Table 4 gives a summary of the most relevant in uencing factors of operation-based costing (OBC) applied in the transport sector. So the implementation of OBC in transport may deliver several advantages and at the same time requires additional resources. at is why it is advisable to consider the bene ts and the costs of the model development and its practical realization before introducing it.

Conclusions
e managers of transport companies require sound and detailed information of cost e ectiveness and e ciency in business and technology processes. e traditionalaccounting oriented -cost calculation procedures do not support this intention due to their methodological shortcomings. ese methods shall be reconstructed or completed by introducing the operation based costing principles.
e principal idea of the new approach is to replace the arbitrary cost distribution with cause-e ect oriented allocations. e main pillar of OBC is that it makes use of measured performance ows representing the operation of the transport company. It is worth noting that more sophisticated methods are also available to model technological processes in transport (Baublys 2009). An interesting research task for the future is to assess whether these modeling techniques can be integrated into OBC. e implementation of OBC in transport requires the adaptation of its techniques to the speci c operation features of transportation technologies. Pro t and cost objects, and even performance indicators shall be dened and their relationships are to be modeled. By doing so, the prime costs and margins of selected elementary transport services can be evaluated in a more exact way and additional cost e ciency analyses in the eld of business units or activities can also be conducted. e introduction of OBC, however, has several conditions which shall be thoroughly considered. It is also should be noted that even this method has its constraints. Nevertheless, further researches and the development of information technology may alleviate the e ects of these methodological barriers.