This system, of course, had many downsides. For one, as already recognized by management at the time, the numbers were very inaccurate, because they were based on the ICC averages which were representative of the industry as a whole, but by no means the Union Pacific system. COAT was also completely incapable to account for variances within the system, such as different fuel usage due to different locomotive specifications or the different terrain of the route. The management countered this problem by saying that the COAT system only provides a flag for where a more detailed analysis takes place.
Secondly, the questions that were being asked of the COAT system are basically flawed. If the results of the system could be used to get a rate hike from the ICC, that would mean exploiting a bureaucratic inefficiency to the benefit of the company, which is always a good thing. However if no bureaucratic error would occur, then the managers were basically tricking themselves into thinking that they've identified a market that they should exit. The costs of a product do not disappear without a trace if the product is no longer offered. This statement carries even more meaning for a "100% fixed cost" company such as Union Pacific. If Union Pacific refused a to perform a move based on the results of the COAT system, it subsequently passed up all the revenue that would have come in from this move. At the same time the costs would only diminish by their relatively tiny variable component, such as fuel, and would be imply reallocated to other moves therefore raising their pri!.
ce. This fairly simple accounting concept seemed to escape the attention of the Union Pacific management, and sent them on essentially a wild goose chase, the costs of which, one could only hope, were covered by the benefits from the ICC bureaucracy.
The need for internal cost control, which I have mentioned earlier, was addressed by management three years later with a project to develop the Management Cost Control (MCC) system.
