The Analysis of Bus Costs and Revenues by Time Period

In Part I of this paper the development of allocated and incremental cost and revenue techniques was described. have become predominant. In contrast, methodologies for dealing with revenues, particularly incremental measures, are in their infancy. Part II of the paper describes the state-of-the-art for these methods. This review is explicitly not meant as a cookbook of methodology, and the reader interested in these aspects is referred to the source literature. The paper concludes with a comparison of the NBC and Adelaide costing models, and comments on the areas of potential future research. In structuring the paper it is clear that the methodologies used to treat costs and revenues are quite distant. Therefore, they are treated separately here with costs being considered first. However, a problem emerges on deciding whether to treat allocated measures before incremental measures or vice-versa (I am indebted to Ian Wallis for pointing out this problem). The Adelaide model assumes that cost allocations flow from incremental analysis. The argument is that costs can be basically viewed as having three components. The first is costs that can be uniquely attributed to a route/time period. These would be costs that would be saved if that route/time period was completely withdrawn. This, in effect, is an incremental cost calculation. The second type of costs occur jointly between routes/time periods and could only be avoided if several or all routes/time periods were withdrawn, but not if only one service segment is withdrawn. The third type is the remaining`fixed' costs which are avoided only if the whole operation closes down. The cost allocation methodology follows from this analysis in that the incremental costs (the first type) are directly attributed to a route/time period, and then the joint and fixed costs are allocated in some fair way across the time periods. Unlike the assigning of the incremental costs, which is scientifically based, the allocation of joint and fixed costs is to some extent arbitrary and not related to cost causality. The National Bus Company method approaches the problem from the other direction. All costs are initially allocated to routes/time periods. An assumption is also made as to which of the allocated cost line items are variable, semivariable, or fixed a service change occurs. A major service change might be judged to influence semivariable as well as variable costs. Incremental cost of a service change in any time period is calculated by adjusting the …