As the Postal Service struggles to survive, it needs to take a good look at the financial health of its products. However, ascertaining the financial health of a product line requires an accurate estimate of the cost of providing that product. The Postal Service is moving into an increasingly data-driven future; thus, the timeliness and accuracy of cost measurement will continue to grow in importance. The Postal Service has not changed its cost system fundamentally in many years, though it updates significant inputs annually. There have been calls for an examination of the accuracy and relevance of the system and implementation of specific changes. In order to inform the dialogue and debate, the OIG published A Primer on Postal Costing Issues, a discussion of postal costing, including the most salient of the concerns the Postal Service and its customers have raised.
As discussed in the paper, the main issues that have been raised are whether the Postal Service:
1. Should use fully-distributed costing to evaluate the financial performance of products?
2. Should adapt the system to reflect the excess capacity currently present in the postal network? If so, how?
3. Should measure bottom-up costs?
4. Should use the new postal data sources in the costing system to improve accuracy and reduce costs?
5. Can improve the timeliness of cost studies and, if so, how?
As the postal market changes, the Postal Service will need new and/or different cost data to support its decisions, including pricing decisions. Many of the suggested changes and improvements would require a significant expenditure of resources at a time when the Postal Service is under substantial fiscal stress. But the Postal Service needs the right cost data to make the right decisions..
What do you think – should the Postal Service be spending money to improve its cost systems? If so, what do you think are the most important changes needed?
This blog is sponsored by RARC.