The foundations of modern cost management: the life and work of Albert Fink

Abstract

After the Civil War, American railroads struggled with profitability problems because they lacked an understanding of the nature of short-range profits as they related to long-term investments, especially an investment that had to be upgraded and expanded almost continually. In the early 1870s, Albert Fink, superintendent of the Louisville and Nashville Railroad, experimented with a cost-analysis system. In general the purpose of the system devised by Fink was to measure the profitability and efficiency of the railroad';s operations in terms of then-revolutionary concepts of fixed and variable costs and costs allocated to multiple accounting periods. Fink's operating statistics, such as revenue and expenses per ton-mile and passenger-mile, became standards in the industry and earned Fink the designation of 'Father of Railroad Economics'. Fink used his cost management techniques to argue against the regulation of the entire rail industry by impending legislation that would create the Interstate Commerce Commission which would subsequently embrace his costing methodology. His statistical analysis also helped to create the basic managerial concept of 'control through statistics', wherein business decisions are made based on sound information.