Optimising your budget to ensure the smooth running of your fleet lifecycle

Annual Fleet Management Conference 2016

OPTIMISING YOUR BUDGET TO ENSURE THE SMOOTH

RUNNING OF YOUR FLEET LIFECYCLE

Developing & Controlling a Fleet Budget

Fleet Managers have to possess knowledge of Financial management

What is Financial management?

Knowledge of the financial issues that affect a manager’s fleets – possibly

including:

financial analysis of various acquisition options,

ability to conduct

a lifecycle analysis,

benchmarking,

outsourcing decisions, and

preparing and implementing a fleet budget.

Annual Fleet Management Conference 2016

WHAT IS A FLEET BUDGET?

Developing & Controlling a Fleet Budget

Develop cost assumptions.

Determine line item expenses.

Correct the variances between budgeted and actual costs

Annual Fleet Management Conference 2016

DEVELOP COST ASSUMPTIONS

Annual Fleet Management Conference 2016

Recognize factors over which you may or may not have any control, but will

impact your budget, i.e.

What factors are present today that may impact the budget you are

currently working on? i.e. Economic Factors,

What factors influenced last year's budget?

What future developments may affect your upcoming budget?

Most companies work on annually escalated budgets based on inflation – Not Ideal!

Economic Trends: Currency

-19%

Exchange rates have direct influence on vehicle & parts prices

Economic Trends: Interest Rates

Economic Trends: PPI

Depreciation costs will remain a major concern

Economic Trends: Vehicle Sales

Less vehicle sales means higher production costs

Economic Trends: Fuel Cost

Where is the Price of fuel going???

Annual Fleet Management Conference 2016

DETERMINE LINE ITEM EXPENSES

Key line items in a fleet budget

a. Capital for new vehicles (owned option)

b. Vehicle depreciation.

c. Interest expense .

d. Leasing and fleet management fees (if the fleet is leased).

e. Personal use chargebacks.

f. Fuel expense.

g. Vehicle maintenance (services, repairs, tyres, etc).

h. Accident/collision expense.

Key line items in a fleet budget

j. Resale or disposal adjustment.

k. Insurance

l. Licence renewal costs

m. COF cost (where applicable)

n. Direct per vehicle cost (such as tracking, monitoring, recovery fees, etc.)

o. Overheads to manage the fleet (staff, systems, premises rental, municipal

services, other, etc.)

Annual Fleet Management Conference 2016

CORRECT THE VARIANCES BETWEEN BUDGETED AND

ACTUAL COSTS

Annual Fleet Management Conference 2016

Controlling the Budget

Correcting budget variances

Identify the expense factors that caused the variance & Implement the

necessary changes to prevent the variance from recurring in subsequent

months.

Once variances have been corrected, document why they occurred as they

can be referenced as "past forces" when preparing the following year's

budget.

Correcting budget variances

Identify the expense factors that caused the variance &

correcting them

Annual Fleet Management Conference 2016

MANAGING OWNERSHIP COSTS

Identifying expense factors that causes the variance

• Variable Ownership Expenses:

– Acquisition Fit for Purpose procurement

– Interest rates Negotiate a fixed rate over contract duration

– Administration Trained Staff & simple efficient systems

– Disposal Quickly, multiple channels, small batches at a time,

outsource

Cost of Ownership

Correcting budget variances

Implement the changes necessary to prevent the variance

from recurring in subsequent months.

Replacement Cycle: Amort Curve

Contract term

Rand

Value

Amortization curve

Market value curve

Replacement Cycle: Maintenance fund??

Contract term

Rand

Value Revenue

into fund

Expenditure over time

Replacement Cycle

Best Practices:

– Develop a defensible replacement criteria

– Project long term replacement funding requirements

– Understand alternative financing options

– Develop a defensible procedure to select actual units to be replaced

– Don’t replace underutilised vehicles

– Buy the right vehicle

– Maximise resale value

– Disposal the program

Disposals & Factors Influencing RV (Ownership)

• Age

• Kilometers

• Make and Model – market demand/perception

• Market flooding

• Inflation

• Substitute Products – Cheap importations

• Over/Under supply from OEM’s

• Load Factors

– Location

– Usage

– Configuration/Equipment

Annual Fleet Management Conference 2016

MANAGING OPERATING COSTS

Identifying expense factors that causes the variance

• Variable Operating Expenses:

– Maintenance, Services and repairs Selection, Std, SLAs & negotiations

– Fuel fuel management systems

– Tyres Supplier SLA, tyre mgnt system

– Usage Abuse policy, enforcement & technology

– Accidents policy, enforcement & technology

– Downtime policy, enforcement & technology

– Unauthorised Use policy, enforcement & technology

– Theft/Pilferage policy, enforcement & technology

OR

Outsourcing & A Well Negotiated CONTRACT

Correcting budget variances

Strategic Outsourcing (properly negotiated contract)

Use of Technology (fit for purpose)

Telematics

Fuel

Downtime

Suppliers & User SLA Management

Dynamic Fleet Policies with Enforcement

Continuously Assess

Correcting budget variances

What is Fleet Management?

• It is not a bank card!

• It is not software or fleet management system!

• It is not a vehicle tracking system!

• It is not a lease!

Fleet management is:

Cost Containment, Vehicle Availability and Risk Mitigation

…by continually monitoring the cost effectiveness of individual vehicles

Fleet Cost Components

Variance Documentation

Document what happened, and

How it was corrected

This will assist in building better, educated cost assumptions in the future

Thank you

Discussion Points

Questions & Discussion