Ask most companies this question – “how do you set your fleet budget?” and the answers we often get are – ‘this is related to some extent on inflation’ – ‘we can afford about 8% increase’ – ‘we have no Capex so we put the operating cost budget up by 8%’ – ‘we have added about 7% and we’ll watch the fuel price and adjust if possible’ – and in one case, even though the monthly kilometres was going up – ‘we can only give 7.5% extra for maintenance!’
What’s your opinion about these answers – not good? Well there is a better, more correct and efficient way to do this.
1. You need to have a correct current c/kms for your different vehicle groups’ e.g. executive cars, essential user cars and your LDVs. Rands are not the value to work on initially.
2. Then you need to assess the economic trends in costs for depreciation, interest, fuel and repairs that make up your c/ kms for each group of vehicles. This requires your estimate of percentage increases for each cost. No vehicle costs are likely to decrease.
3. This assessment will give you a more accurate increase for each cost area.
4. You will now be able to calculate a new projected c/kms for each group of vehicles based on their projected kilometres for the next year.
5. Then a simple comparison between the last twelve months of your fleet costs to the next twelve months will indicate you budget requirements.
6. It NEVER should be an overall simple percentage increase. If this is what you have been doing as a financial or fleet manager – to put it simply you are not being very accurate!
7. Insurance should be calculated separately as these costs are directly related to your accident ratio per vehicles in the fleet. Your loss ratio should be discussed with your insurance company to determine your next twelve months premiums and excess payments.
So now for a live example of costs projections for a fleet of 25 executive vehicles, 60 essential user vehicles and 15 LDVs. The escalations are based on FleetCUBE’s inflation assessments for each of the costs areas mentioned above for a well run fleet.
1. The 25 executive cars – current 12 month costs – R3.382m projected to cost R3.720m for the next 12 months. A 9.98% increase.
2. The 60 essential user’s cars – current 12 month costs – R4.608m projected to cost R4.860m for the next 12 months. A 10.6% increase.
3. The 15 LDVs – current 12 month costs – R1.134m projected to cost R1.255m for the next 12 months. A 10.7% increase.
4. This is a total projected fleet operating cost of R9.835m for a well run fleet operation of 100 vehicles.
5. This also assumes no increase in fleet size and the same 2500 kms a month.
If the fleet increases by only 10 vehicles and each vehicle usage went up to 2600 kms a month, this increase could be about 21%!
We can help you set more correct budgets for the next twelve months for your fleet operations. You can also try and use the Operating cost Budget calculator.
Give me a call on 011 782 9211 at the office. If I am not in, please ask for Mari and let’s see how we can help you set a detailed accurate fleet operating cost budget. You can also email me at info@fleetcube.com.
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