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Old 26th Oct 2009, 18:50
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WHBM
 
Join Date: Oct 2002
Location: London UK
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Costing is one area that alas comes my way all too often !

You must remember the maxim that "costs can be bent to show whatever you want". There are whole books on the subject, many of which offer opposing opinions. A typical example is this "delays cost £(insert large figure here) per minute" quoted.

The basis for this nonsense is often taking the total operating costs for the whole airline for a year (let's say £1.8 billion) and dividing it by the total number of flying hours (say 100,000 hours, a fleet of 40 averaging 2,500 hours per year each). You will see my example works out to £18,000 per hour, or "our planes cost £300 per minute to run", which is very conveniently your figure as well. You can always get an airline's total operating costs for the year from their published annual financial accounts, which often give the number of hours flown as well, so you can see these basic figures for yorurself for real.

But if the aircraft is delayed in departure, what are the additional costs ? If you are "sitting on a pier-served stand" then the engines are not operating, no extra fuel is consumed, and in particular no hour-based maintenance costs are clocking up either. Crew are paid (broadly) by the flying hour, so there is little extra there either. Things like insurance or the share of the MD's salary cost no more than if you got away on time. What cost there is, is the much smaller "additional cost" of the actual delay, simplistically how much extra you have to shell out compared to if you had not been delayed. This is a much smaller figure, but is much more tedious to work out.

Believe it or not, some quite substantial businesses are run without their accountants having grasped these basic principles. If you know the railway you may have heard of the "Beeching Report" in the 1960s, which was a fundamental over-simplification of costing that led to inappropriate decisions and restructuring of an entire industry, including huge investments in new capital equipment that was not required.

In passing "Cost Benefit Analysis" is usually a complete fraud, bending the figures using a theoretical pseudo-science to show what normal figures never would.
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