Fleet Budgets
Why as the custodian of the company's fleet and the person who has the best hands on experience are you not always involved in the preparation and management of the company's fleet budget?
Fleet is generally an organisation’s 2nd or 3rd largest expense. As the fleet manager your participation is essential because of your experience and understanding of the fleet. Develop a costing model that reflects the requirements of fleet and your skills and then engage with management to finalise a realistic budget.
When preparing the fleet budget is it sufficient to take last year’s fleet expenses and inflate them by the CPI without initially applying a process to improve the cost efficiency of the fleet. This can be achieved by right sizing the fleet, incorporating new and terminating vehicles and most importantly implementing operating cost management processes such as fuel, maintenance and accident management. Similarly is it reasonable to cut last year’s budget by a value because times are tight when there is an expectation of improved service? Budgets should reflect an optimised situation.
Budgeting is a good opportunity to get the fleet size and cost structures right. What process should be applied?
- Complete an audit to identify monthly Kms / Hrs usage, age and condition. Fleet Tips #2 – Completing a Fleet Audit
- Prepare a CAPEX forecast identifying vehicle replacements and terminations, the associated CAPEX costs and income from disposals. Fleet Tips # 7 – Replacement Planning – CAPEX and OPEX
- Prepare depreciation or lease rentals costs for both current and new vehicles.
- From the fleet audit identify a Kms /Hrs allowance for each vehicle which is reflective of current usage and future expectations.
- Establish cost benchmarks for fuel (fuel cost & consumption) and maintenance expenditure (cpk) and apply these to your usage forecast and calculate future costs. Remember to adjust for old and new vehicles Fleet Tips # 14 - Benchmarking
As examples;
- Old LDV travelling 2250 Kms pm maintenance 60cpk = R1350 pm
- NEW LDV travelling 2250 Kms pm maintenance 35cpk = R787 pm
- Old LDV travelling 2250 Kms pm Fuel @ 14L/100Kms = R3780 pm
- NEW LDV travelling 2250 Kms pm Fuel @ 11L/100Kms = R3217 pm
- License and registration costs can be identified from Websites for each category of vehicle.
- Tracking & Telematics, Toll fees, Fuel card fees and other service fees can be identified as a line item per vehicle and incorporated into this budget.
- Insurance costs can be determined on either a vehicle or fleet basis, depending on the organisation’s arrangements.
- Staff costs and overheads can also be incorporated into this budget but input will probably be required from the finance / HR department.
Put these values into a spreadsheet, on a per vehicle and expense category basis and you will have created a most valuable document.
Although the process may sound cumbersome or even excessive, by basing the cost model on actual usage you will generate a meaningful cost forecast which becomes the basis for discussion and agreement for your future budget. It reflects your skill, knowledge of the fleet and your willingness to upgrade the fleet operation.
A well planned budget, in which you have actively participated, can be used to develop KPIs and employee incentive schemes.
Have a question?
Contact Nigel Webb - Latitude Fleet Services - nigelw@latitudefleet.co.za