Total Cost Analysis of a Fleet
Total Cost Analysis of a Fleet

Total Cost Analysis of a Fleet

A data driven company is defined as follows : a company that enhances data extraction & analysis, to make it available to its employees and customers with the goal of allowing them to make commercial decisions based on that same data.

In the case of fleet management, the cost analysis of this management is the most efficient way to gather relevant data for decision making when the goal is to maximize profit. Using a software is the keystone of this strategy.

Time-Cost-Quality triangle

Understanding the “Cost of fleet management” analysis

Many fleet managers have a hard time managing their budget because of a lack of real time monitoring and visibility. The hand-operated follow-up of expenditures & “Numbers analysis” are not only a waste of time, but can also cause inaccuracies and a lack of clarity from one budget to the next, and sometimes within the same budget. 

This budgetary control is one of the most meticulous tasks a fleet manager has to face, but when well done, a good monitoring of the expenditures allows a deep analysis of the managing costs of the fleet.

Fleet Management Softwares allow fleet managers to keep an eye on expenditures in real time, and to easily calculate the Total Cost of Ownership (TCO). A precise view of the fleet’s expenditures allows you to set up an in-depth analysis of these expenditures, make estimations on future costs and then make decisions that will contribute to improving your operations and your profitability.

How to calculate the total cost of ownership?

The first step towards an efficient fleet management costs management is to understand TCO of your fleet. Determining the TCO of your fleet can seem intimidating, especially if you still use archaic methods, but the calculation is easier than it looks.

Monitoring the operating expenses of each vehicle in a fleet management software allows you to access real time operating expenses to determine your total expenses. As your CTP is constantly changing, having access to a monitoring tool, and generating digital fees receipts on a regular basis is the best way to stay informed about what is going on.

Calculate your TCO

But which categories are important when solving for the TCO?

Fixed costs and operating costs. 

Fleet expenses are divided into fixed and operating expenses. Fixed costs are established costs that won’t vary, no matter the usage. Here are some examples :

  • Taxes
  • Insurance
  • Depreciation  (depending on the system you use)
  • Licensing and patterns 
  • Rent and debt repayments.

Operating costs on the other hand, are variable costs and will evolve depending on various factors. Controlling these costs is essential to maximize profitability. Here are some examples of these costs:

  • Maintenance (one of the two most important operating costs in fleet management) 
  • Fuel (the other most important cost)
  • Piece replacement costs
  • Tolls
  • Parking

The fleet management cost analysis allows you to dive deep in these variables costs and to determine the best means of reducing them. Is there one particular vehicle impacting your maintenance budget? Are you spending too much in fuel?

The monitoring of these data and the questions you ask yourself after reading them help you think about decisions as a fleet manager and push your company towards a better efficiency throughout all of your processes. 

Calculating the cost per kilometer.

Once you have a precise view on your annual TCO, you can, with complete confidence, determine your cost per kilometer. You can find this number by dividing your CTP by the amount of Kms travelled in a year. You can do the same thing per month.

To make that process easier, fleets can integrate their GPS or telematic system in a fleet management software to automatically synchronise the odometers. By automating both the management of expenses and the odometers monitoring, fleet managers can determine with great accuracy their cost/km, in real time, and in a few seconds.

Taking advantage of the TCO to make decisions based on data.

The fleet management software allows you to determine easily your TCO, but once that is done, what is the next step?

It is then possible to determine reference parameters for similar vehicles and estimate the expected costs depending on the lifespan of each vehicle.

Managers can also create adaptable reports and share them with interested parties to develop strategies that will allow an operations improvement. 

Vehicle replacement 

It is hard, if not impossible, to fit a vehicle replacement strategy if you don’t have an overview of your expenses. Gathering the data from your fleet in a software allows you to easily analyze the history of expenses and maintenance services per vehicle.

Maintenance strategy.

As mentioned previously, maintenance is one of the main variable costs. Elaborating strategies with the aim of reducing maintenance expenses is the best way to improve your results.

Adopting a proactive approach to maintenance, by following the maintenance framework recommended by your equipment manufacturer, enables you to keep your vehicles in good working order. The creation of maintenance reminders in the software informs you of the tasks upcoming, which helps you to monitor better these routine maintenance tasks.

A proactive management of maintenance tasks, should they be routine tasks or not, prevents costly stop times and extends the lifespan of your vehicle.

Good strategies are set up only when backed up by reliable and representative indicators. The cost analysis of a fleet allows you to drive your strategy towards more efficiency and increases the satisfaction of the people you are working with. Fleet Management software is a major asset when needing to access this information.