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Five cost metrics your fleet manager should care about

Posted by Sudesh Pillay on 2019/10/23 12:24 PM
Sudesh Pillay

Five cost metrics your fleet manager should care about

In this modern, digitally-driven age, fleet managers are faced with sometimes overwhelming volumes of data but, should always remember and focus on the basics.

Getting the basics right is the most important step to effective fleet management and this involves collecting, analysing and interpreting reliable data to understand and manage the factors that drive fleet costs.

While the process of reviewing fleet data to discover the effectiveness of a fleet operation could rightly be called an audit, this label has some negative connotations that can impede the process – so ‘operational review’ is perhaps a better and more accurate description of the process.

We take a look at the top five fleet cost metrics.

1. Depreciation

Depreciation is the single largest fixed cost in a fleet and the key for any fleet manager is to establish a benchmark, then track performance going forward. The benchmark can be from the current point forward or it can be used to establish historical metrics and track trends.

2. Fuel use and cost

This is one of the largest variable costs associated with running a fleet. The metric needs to measure not just fuel consumption, but also how many kilometres that fuel returns. So, a ratio of cents per km could be a good metric, as could km per litre. The key is to not just measure how much fuel is purchased, but how many kilometres the fleet can travel using that fuel. Monitoring it this way also aids in identifying where possible fuel theft occurs.

3. Total cost of ownership

When analysing the total cost of ownership, fleet managers must analyse direct and indirect costs. Direct costs comprises depreciation, interest, vehicle repair, maintenance, tyres, fuel consumption, insurance, tax, and administration fees.

Knowing how much the fleet costs for every kilometre travelled is the best way of working out how expensive it is. Life cycle costs cannot ultimately be determined until after a vehicle is sold, so the same metric should be tracked throughout the vehicle’s life in service.

The only variable is depreciation — the actual cost of which is not determined until after the sale — which, during the vehicle’s service life, can be calculated using either accounting depreciation or the lease depreciation reserve.

After the sale is completed, any ‘gain/loss’ from the sale versus remaining book value is simply deducted from the total cost to establish the final life cycle cost d. It would be even better if a discounted cash flow type of approach is used to assess the total cost as this would enable one to factor in the time value of money into their assessments.

 

4. Utilisation

The utilisation of a fleet for value-creating activities is one of the most important measures at a fleet manager’s disposal. By monitoring the utilisation regularly, the fleet manager would be able to optimise the fleet from a cost, distribution and disposal perspective. It is advisable to move vehicles amongst fleet users to maximise the utilisation of the fleet, however the higher expected cost stemming from over utilisation must be tempered.

5. Average cost per accident and accident frequency

Accidents impact the efficiency of fleet. An accident creates a significant cost, and  can take a vehicle out of use for a period. Recording the frequency of accidents is important because each accident has an impact on efficiency.

Measuring accidents-per-kms driven can also help a fleet manager understand the true cost of those accidents as it relates to the size and use of the fleet. Frequency of accidents is one metric to measure when analysing efficiency.

Fleet managers should also measure the average cost per accident. Those costs need to include the repair costs, rental costs, and liability costs. An accident avoidance and evaluation programme aids in reducing the frequency and cost impact of accidents. Regular fleet inspections have benefits in identifying damages to vehicles in the early stages and influences driver behaviour – as does professional driver training which, although an upfront cost, can reap huge returns in the long run by drastically reducing accident damage.

 

When performing an operational review analysis fleets should:
● Collect as much data as possible.
● View the process as a means to correcting fleet operations and not an end in itself.
● Standardise procedures and use year-over-year data to help tell the fleet’s story to           senior management.

The first stage in managing these cost drivers is measuring them. Having these reported on regularly would assist the fleet manager in obtaining a benchmark that can be used in measuring improvements.

It also gives the fleet manager an objective test to use in assessing the effectiveness of any new initiatives.

For the measuring to be effective, the data collection is a very important step. If accurate data is difficult to come by, one should strive for consistency as with consistent data, trends and the like can be picked up and acted on.

Telematics solutions and other on-board solutions can help by providing data and information often without human interaction and can reduce the likelihood of errors such as data input errors when entering odometer readings, etc. Solutions can improve for example, routing, maintenance diagnostics and vehicle utilisation.

 

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