The challenge of corporate fleet management is often managing vehicles that the fleet manager doesn’t see. Fortunately, modern fleet management programs, services, and tools allow for the capture and mining of the mountain of data that the acquisition and operation of a fleet of vehicles generates.
Most fleet managers are required to report to management on some regular schedule what costs are and how the fleet is doing against a budget or annual cost plan.
Reporting begins with the fleet manager’s direct supervisor, and continues “up the ladder” to the executive suite, and ultimately, the CEO.
Then the questions arise — what kinds of key performance indicators (KPIs) are of interest to the CEO? How much information is enough — or too much?
Here are some tips on not only how to report to the highest levels, but what kinds of information will be of most interest.
Digging Through the Data
No doubt, running a fleet of company-provided vehicles throws off a mountain of data. A single fuel purchase transaction, for example, can create as many as 50 individual data elements. Operating expenses, depreciation, license, and title data, all of these areas of fleet and more create streams of data that, properly formatted, can tell the fleet manager what overall costs are. Those costs are then combined with all other costs and ultimately impact what the company’s bottom line will be.
For most companies, the cost of company vehicles is second only to salaries for employee drivers. And, that is why fleet costs are of interest at every level of management, right on up to the CEO.
Fleet managers need to delve much deeper “into the weeds” of fleet costs than senior managers; the higher up in the organization you go, the less detail will be needed. So then, what KPIs does your CEO want to see?
Detailing Important Trends
As previously noted, the higher up in the organization one goes the more “compact” the information should be. Your CEO doesn’t need all the detail that is important to a fleet manager, so don’t show him or her numbers.
The format used is almost as important as what it reveals. Use graphs to indicate trends, and bullet points to explain what the report is showing.
Most senior executives, including the CEO, are interested in trends — specifically, cost trends declining and cost savings increasing. A fleet manager’s KPIs usually include both — what is the trend in both fixed and operating (variable) costs and what hard dollar cost savings have been achieved. There is a simple reason for this: If the company realizes, say, a 10-percent net profit margin, a $1 increase in revenues results in an added 10 cents to the bottom line. But, $1 in cost reduction results in $1 net profit. CEOs are most interested in what any of their managers are doing to contribute to the bottom line — and, in a public company, to the value of the stock (or if private, to the return on investment for the owners).
Determining the Right KPIs
Fleet managers’ KPIs can vary somewhat depending on what the fleet’s mission is. The fleet might be a service fleet, with vans or light trucks that service customers. It might be a sales/marketing fleet, where sales staff travels to visit prospective customers to generate new business. Or, it may be a delivery fleet, bringing product to customers — or even a combination of all of these.
But, there are some KPIs that will be common to all of these:
- Fixed costs: What reduction in fixed costs (primarily depreciation or lease costs) have been achieved.
- Variable costs: The same for variable/ operating costs, such as fuel and maintenance/repair/tires.
- Productivity: How has the fleet manager contributed to increased productivity within the vehicle mission; e.g., enabling sales staff to visit more customers in a week, a delivery truck to deliver more product or a service staff to complete more service calls.
- Performance: Fleet costs vs. budget or plan.
It would be unusual for a fleet manager not to have to achieve these KPIs (or something similar).
There are a great deal of data each of these KPIs involve. What the CEO is looking for are trends in the right direction--downward (or at least level depending upon the circumstances) for costs, up for productivity.
Reporting True Savings
CEOs tend to be pretty smart managers and will fairly easily see through attempts to "fake" savings.
For example, the fleet manager notices that when out-of-service vehicles are sold, the proceeds are fairly close to their remaining book values. And, further, suppose the fleet manager decides “If I change the depreciation reserve rate, the remaining values will be smaller, and the ‘gain on sale’ will be greater.” The next report the fleet manager provides to the CEO will show that the current period’s gain on sales is 25-percent greater than it was during the same period last year — and shows this as cost savings.
But, this isn’t cost savings. This is merely paying for the vehicle’s value at a faster rate during it’s time in service to achieve a “gain” on sale when it comes out. A CEO will likely see right through this kind of “fake” savings.
Now suppose that, based on a consultation with the company treasurer, the fleet manager decides to fix a previously floating rate lease program. If this gamble works out, and rates rise, those can be considered definite, hard-dollar savings.
Keep this in mind, a CEO, though he or she isn’t any kind of expert in fleet management, is smart and experienced enough to recognize true savings vs. the mere shuffling around of funds.
Fleet managers aren’t always able to actually reduce costs. A perfect example is fuel.
Not only are fuel costs by far the largest variable cost category, but they’re also the most volatile.
Yes, there are actions fleet managers can take to produce real savings, but the fact is fuel costs are primarily dependent on prices at the pump, and we all know how volatile they can be.
To a lesser extent, the same goes for other variables as well as fixed costs: tires, repairs, even used-vehicle values. And, fleet managers have no control when tire prices increase, or the used-vehicle market tanks.
But, here is where a fleet manager can achieve a KPI without actually reducing costs.
Put simply, if pump prices, on the average, have increased during the period by 20 percent, but the fleet manager takes actions that keep the increase in costs to 10 percent, this is “cost avoidance,” and will be recognized by a CEO as a real accomplishment.
The same goes for any other cost categories where, though prices have increased, the fleet manager has acted to keep cost increases to a lower rate.
This strategy requires a fleet manager to keep informed as to prices and price trends in all cost categories and to take whatever action is available to minimize their effect on costs.
Importance on Budgeting
It is also important to keep KPIs in mind when creating next year’s budget forecast. Too many managers tend to simply take last years’ performance and add an inflationary increase to project the coming year. This can be a prescription for disaster.
Review all cost categories, and understand what factors have the most impact on costs. Fuel, as mentioned previously, is a good example. Graph trends in used-vehicle values over time, and see if they can be incorporated in fixed cost budgets. Discuss interest rates with your treasurer, and use his or her forecasts (they have KPIs, too) when projecting lease rates or borrowing costs. Meet with OEMs and find out as early as possible what kind of price increases are in store for the coming model-year.
The bottom line is to avoid guessing as much as possible; your budget will likely be a major starting point for your new KPIs, and you’ll need to be as accurate as possible.
Your CEO isn’t interested in much that you’re not interested in. Your goals are the same, but you’ll be poring over a great deal more data, in much more detail, than the CEO has the time for. Remember, he or she will be looking at similar data from any number of departments, and possibly from individual business units.