Chapter 4 - Cost structure

Question 1

What is included in operating expenses?

Answer 1

All recurrent costs associated with producing the railway service

Question 2

What are the 6 main components of operating expenses?

Answer 2

1. Labour - costs for railway staff salaries, pensions, benefits
2. Energy - diesel/electricity
3. Materials - track materials - rails, sleepers and ballast. Spare parts and consumables
4. Services - externally purchased services such as maintenance, catering
5. Rental - payments for use of asset/facility - lease for rolling stock, per diem
6. Depreciation - investment cost spread over useful life. Represents annual investment railway should make to renew its assets

Question 3

When do we know when there is a problem?

Answer 3

When a certain cost element becomes disproportionately large, it should be investigated

Question 4

What do we do when we know there is a problem?

Answer 4

To identify cost ‘outliers’, the cost mix and costs per unit of output can be benchmarked against railways with similar traffic and operating characteristics

Question 5

Learn cost ratios

Answer 5

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