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Aviation History
1951
1951 - 0469.PDF
FLIGHT, 9 March 1951 293 MAKING AIR TRANSPORT PAY Mr. MasefieWs Brancker Memorial Lecture. Part IV: How B.E.A. Controls Expenditure IN our three previous issues we have published slightlyabbreviated versions of the major portion of Mr. PeterMasefield's notable Brancker Memorial Lecture to the Institute of Transport. Below, in conclusion, are abstracts from the final sections of the paper, in which its author reviews B.E.A.'s system of expenditure-control and then briefly summarizes the theme of the whole lecture. Mr Masefield is, of course, chief executive of B.E.A. I have now [said the lecturer] examined a method wherebyfactual airline, aircraft and route costs, together with revenue, can be forecast, planned and then compared and controlled againstactual results. That is an important part of successful airline operation to which there is no adequate short cut. An equallyimportant side to the business, however, is the detailed depart- mental control of expenditure. In B.E.A. we have been operating a detailed system of budgetarycontrol for two years. Briefly, it sets up a firm line of financial responsibility right through the organization and apportions thatresponsibility for expenditure under those properly concerned with its administrative control. Month by month the resultsgained are compared with those budgeted for the month. Any deviations from budget are immediately brought to light and canbe dealt with. In my view, the use of outside specialist consultants—standingaside from the domestic administrative problems of any concern —is of real value in assessing the need for detailed organizationaldevelopment. We have had valuable help from Production Engineering, Ltd. B.E.A. have evolved a system by which each administrativedepartmental head and, under him, each branch head, is responsible for a specified proportion of the budget. Decentralization anddelegation is in this way possible without loss of effective cohesion and, as the administrative line is clear-cut there can be no dodgingof responsibility. Thus, while the chairman and board are responsible for B.E.A.'s total expenditure from a broad policypoint of view, the chief executive (who also shares policy responsi- bility) is directly responsible for the whole of the operatingexpenditure, amounting to some 99 per cent of the total. In our own case this total is exclusive of B.E.A.'s share of any lossesincurred by associate companies and of the expenses of advisory councils. By delegating our expenditure progressively down the linefrom department heads to foremen and even chargehands we have inculcated a cost consciousness throughout the organization.Each month actual results are thrown up against the budget. Instances of overspending can then be investigated and remedied.This monthly comparison is an essential part of the success of such a system. A budget which remains rigid over the period of a year is notsatisfactory in aviation—a developing business, affected financially by so many factors, many of them (e.g., fuel tax) outside theinfluence of the airline. Hence we have established a system whereby the chief executiveand chief accountant together accept or reject budget amendments submitted periodically by departmental heads. Amendments areadmitted only if caused either by deliberate changes of policy affecting costs or by changes of major circumstances outside theorganization's control. In this way a budget is maintained which is at once firm in its control but flexible enough to remain realistic.Furthermore, the annual budget is reviewed at half-yearly intervals. This system applies not only to expenditure, but also to revenue,and thus controls the whole field of commercial activity of the operator. Allying this to the "moving annual totals" method of trend-analysis, to the aircraft type costing and to the route costing, means that a detailed monthly check of the position is obtained and rapidaction is possible to set right deficiencies. A relatively large organization is thus kept flexible, and ready and able to useinitiative to improve results. By allying a realistic basis of cost-analysis with precise butflexible forward budgeting, by insisting on a clear line of authority and of financial responsibility, combined with a system incor-porating substantial decentralization, and by comparing forecast results with actuals, month by month, and then acting on theinformation thus thrown up, a step forward in airline economic control is possible. Much remains to be learned and applied;tut the possibilities are great. Such [concluded the lecturer] is a wide—but superficial— survey of British air transport. I do not pretend that the suggestedapproach to airline costing is perfect—the whole business is constantly developing and progressing. There is still much tolearn—in aviation we are always learning; but I do think that it offers possibilities of closer control than in the past. My belief is that air-transport operations can be made intoprofitable, as well as essential, contributions to the nation's well-being. Certain "social" services will never pay. But ingeneral, as the graph of B.E.A.'s cost and revenue rates shows, the economic future is full of promise. Without wishing to enterinto political controversy in any way, I believe most sincerely that a period of stability is needed if the promise inherent in newand advanced types of British commercial aircraft is to be brought into its full usefulness and if scientific methods of analysis andcontrol are to be developed and applied to achieve economic results. One word of warning is necessary, I think. We are living in anera of rising prices. Air transport is one of the very few industries in which the revenue rates are today lower than they were threeyears ago and compare closely with revenue rates before the war. Although specific costs have been corning down steadily, the risein wages and in costs of commodities, in a period of re-armament, may well halt this rate of fall and lead either to increased air faresor to increased deficits. Should this happen, it will be a sad disappointment for those who have worked to reduce the cost offlying and to bring air travel, economically and profitably, within the reach of every man and woman. If there should be such apause, I am sure that it will be but temporary. Aviation is still in its pioneering days; much greater advances lie ahead than anywhich have been made in the past. In the past there has been, as I have noted, a lamentable trendto hush up and conceal results. Not only has this tended to cloak inefficiency but it has meant that those who share the heatand burden of the day in working out air transport's salvation have not been able to feel that they are an essential, and fullyinformed, part of the team engaged in the job. Only by full information and a wide understanding of what isbeing attempted and achieved can this, our air transport business, be built into a secure and economic edifice. Although a scientificapproach is needed we must never forget that the working of the machine has to be done by human beings, each with his or herown personal approach. Full information of purpose and prospects and full consultation on ways to achieve the desired results areessential in any team—large or small. In this presentation of facts and formulae I have kept nothingunder the counter. Some may think that a revelation of full costs on the London-Paris route gives away economic informationwhich should be withheld. I do not agree. Only by a full exposi- tion and discussion of results and ideas can the progress be madein aviation which is so necessary to its wider use and of which no one concern can have a monopoly. FORTHCOMING EVENTS Mar. 15. Mar. 17. Mar. Mar. Mar. Mar. Mar. Mar. Mar. Apr. Apr. Apr. Apr. May 17. 17. 17. 24. 29. 31. 31. 6-10. 7. 12. 13. 6. R.Ae.S.: "Towards Hydraulic Serviceability," by H. G. Conway, M.A., M.I.Mech.E., F.R.Ae.S., and R. H. Bound, F.R.Ae.S. Helicopter Association : "Convertible Aircraft," by Capt. R. N. Uptrot, C.B.E., B.A. British Gliding Association: Annual General Meeting. R.A.F College, Cranwell: Rugby and Fencing v. I:cole de I'Air (home) and Hockey v. Royal Naval College, Greenwich (away). British Interplanetary Society: Film Show, CentralTechnical College, Birmingham. British Interplanetary Society: Film Show, Science Museum, -London. R.Ae.S.: "Modern Naval Aircraft Design." by D. L. Hollis Williams, B.Sc. F.R.Ae.S. Army v. R.A.F. Rugby, Twickenham. R.A.F. College, Cranwell: Hockey v. R.M.A. Sandhurst (away). Physical Society: Exhibition, Imperial College, South Kensing- ton, London, S.W.7. British Interplanetary Society: "Evolution of Life in the Universe," by Prof. J. D. Bernal, F.R.S. R.Ae.S.: "Comet Planning and Production Methods," by H. Povey, A.F.R.Ae.S. College of Aeronautics, Cranfteld: Senior Common Room Society's Annual Dinner. R.Ae.S.: Garden Party, White Waltham.
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