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Total cost of ownership: Calculating TCO is surprisingly easy

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Recent research by Fleet Operations revealed a surprising – and somewhat alarming – discovery. Only one in ten companies currently take total cost of ownership (TCO) into account when procuring vehicles.

The reason for this is unclear. TCO, after all, offers the most meaningful and accurate means of evaluating fleet vehicles. Anecdotal evidence from our extensive conversations with the market suggests the cause may be a simple lack of awareness of how easily TCO can be calculated.

Businesses can be charged thousands for the use of sophisticated wholelife cost modelling tools – but these can amount to using a sledgehammer to crack a nut. The advent in recent years of CO2-based taxation and mpg data supplied by manufacturers has made the requisite metrics for calculating TCO readily available. Fleet decision-makers can utilise this along with key real-world fleet data, such as lease costs, insurance and employers’ NI, to make a relatively straightforward spreadsheet calculation.

For the two-thirds of companies that ranked purchase price or lease cost as their biggest consideration, now may be the time for them to review fleet policies. Headline prices should of course be taken into account, but doing so in isolation shines a light on just one ingredient on the smorgasbord of fleet overheads. Collaboration between fleet and finance departments can help ensure pertinent data and expertise are shared for more accurate procurement decisions.

The study’s finding that vehicle reliability is a priority for a third of companies highlights another issue worthy of consideration. The business disruption and operational cost implications of vehicle off-road time can be considerable and so, where possible, these companies should also be factoring this into TCO. The difference between vehicles that average one day of downtime with ones that average three across a kitted-out LCV fleet, for example, can mean a difference of several thousand pounds to the business bottom line.

Moreover, maintenance strategies and accompanying preventative processes should be regularly reviewed to ensure they are suitably robust, efficient and cost-effective.

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