Understanding vocational expense

Published in the November 2019 issue of Fleet Affiliation

Specialized vehicles are complex and expensive. Often costs are not understood, and organizations resort to less expensive options to get the job done. Management may experience sticker shock if it does not understand the importance or efficiency that these specialized vocational trucks bring to an organization. Life cycle costing is an important tool for fleet managers to justify vocational vehicle cost. “The end justifies the means” comes to mind (Niccolò Machiavelli, 16th century philosopher). While Machiavelli’s moral convictions were often questioned, when it comes to the vocational segment, means can be considered the end product needed to complete the job, while the ends can be looked at as the monetary resource. Life cycle costing is an important tool that fleet managers can use to help justify vocational vehicles cost. Justifying the end with the means plays an important part in running a fiscally responsible operation.

Defining the means

Before any cost analysis can be made, it is imperative to define the means. Many times, purchases are made on intuition without having this information. Experience and intuition can be valuable, but they are not absolutes. It is becoming an increasingly cost-conscious environment for internal and external forces. Understanding operational needs and evaluating multiple scenarios are important to achieving the lowest total cost of ownership while maintaining the best value. The first step is to identify upfront job requirements. Failure to do this will result in costly revisions either in time delays or post-delivery modifications. Once the core requirements are defined, consider features that will increase productivity. With increased productivity often comes increased acquisition cost. It is important to define and monetize the savings from increased productivity. While not all items can easily be monetized, there are many factors that can show bottom-line net savings. Some not so common items include operator morale. When operators take pride in their equipment, the result is often more productive employees and reduced equipment maintenance cost. Another consideration is resale. Although some items may not be related to your organization’s direct operational core, the secondary life of vocational trucks should not be forgotten. 

Justifying the ends
When the means have been defined, it is time to justify the ends — a financial justification, not a moral justification. Most procurement professionals do not have financial carte blanche and their decisions will require sound justification. As when defining job requirements, intuition and experience are valuable, but often not enough to convince management. Remember, management does not always have the same understanding and experience as compared to veteran fleet professionals. Management’s job is to be stewards of an organization’s finances and it requires sound justification. Life cycle cost analysis is an important tool — a black and white prediction of justifying the ends. The key components to this projection are, acquisition cost, long term operating and maintenance costs, vehicle productivity (reduced staff/labor time) and end-of-life resale or salvage value. With this formula, there should be little resistance for the end to justify the means.

NTEA’s Vehicle Life Cycle Cost Tool is a cloud-based resource enabling users to evaluate multiple strategic or operational alternatives in a quick, comprehensive approach (this resource is a free Association member benefit — not available for public purchase). Get details and access the tool. Contact NTEA for member login information (800-441-6832 or info@ntea.com).